U.S. Small Bank Deposits Drop Largest Since March 2017

AHMEDABAD: After the collapse of America's small giant Silicon Valley Bank, small US banks have recorded a record drop in deposits. Data released by the US Federal Reserve on Friday showed that small-sized banks saw a historic drop in deposits this week.

Deposits in small banks fell by $119 billion to $5.46 trillion in the week ended March 15, more than double the previous record decline. This was the largest decline in deposits since the week ended March 16, 2007.

Loans at all but the 25 largest commercial U.S. banks rose by $253 billion to a record $669.6 billion, according to the Fed's weekly data. Smaller banks thus had only $97 billion of surplus cash at the end of the week. This figure indicates that banks have taken advance preparations as a precautionary measure of withdrawal of deposits by depositors.

On the other hand, deposits at major US banks rose by $67 billion to $10.74 trillion in the reporting week, Fed data showed.

Fed figures show that only half of the decline in deposits at small banks went to large banks. This trend suggests that some cash may have gone into money market funds or other instruments. Big banks also increased loans by $251 billion this week.

The flow of deposits into the banking system has stabilized over the past week, Fed Chairman Jerome Powell said on Wednesday. After a sharp increase in the deposits of American banks in 2020 and 2021 during the hard times of Corona epidemic, it has now decreased.