Why the struggles of mid-sized US banks could be bad news for the Main Street economy
Silicon Valley Bank's spectacular crash threw the spotlight on deposits flowing out of regional banks, and those shrinking money pools stand to make it even more difficult for American households and businesses to get loans.
"The uncertainty generated by deposit movements could cause banks to become more cautious on lending. This risk is heightened by the fact that mid- and small-size banks play a disproportionally large role in US bank lending," wrote JPMorgan's global markets strategy team led by Nikolaos Panigirtzoglou.
"The greatest vulnerabilities with respect to credit creation going forward lie with non-mortgage bank lending to households and mortgage bank lending for non-financial non-corporate businesses," JPMorgan said. "I don't think it's good to just have a couple of mega-banks. Regional banks can potentially give better service, more customized products, potentially higher deposit rates," he said.
The Fed's rate hikes and the"failure of bank deposit rates to respond to this rise," and the central bank"draining reserves" from the banking system through quantitative tightening were two key drivers of deposits outflows, said JPMorgan.
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