Deposits fled toward size

Silicon Valley Bank failed on Friday, March 10, 2023. Its depositors, mostly startups with balances far above the $250,000 insurance limit, had tried to pull $42 billion in a single day. Signature Bank failed two days later.

Depositors elsewhere drew a quick conclusion: they perceived uninsured balances as safer at very large banks. The Federal Reserve's weekly H.8 data, which splits domestic commercial banks into the 25 largest ("large") and all the rest ("small"), shows what happened next. The chart indexes both groups to the week before SVB failed, March 8, 2023.

In the week of the failures, deposits at small banks fell by $149 billion, about 3% in seven days, while deposits at large banks rose by $54 billion. Money wasn't only leaving the banking system; it was moving within it, toward size. New York Fed research using a different breakdown by asset size reached a similar conclusion: outflows were concentrated at super-regional banks, with $50–250 billion in assets, and went mostly to banks with $250 billion or more.

After that week the two paths diverged. Large-bank deposits drifted lower through April. Small-bank deposits bottomed at the end of March and then recovered part of their losses. Government guarantees for SVB's and Signature's depositors and the Fed's new Bank Term Funding Facility helped contain the immediate panic. First Republic, the next weak link, was seized and sold to JPMorgan Chase on May 1.

Across all commercial banks, deposits fell by another $229 billion between March 15 and April 26; this chart can't show where that money went. By July, small-bank deposits were still about 2% below their level the week before SVB failed.