Splitting Deposits and Fleeing to MMFs... Avoiding the US SVB Turmoil

Increased MMF Asset Inflow Following SVB Bankruptcy
Surge in Deposits at Major Banks
Small Businesses Face Reduced Loan Options

"Just as banks assess their customers' creditworthiness, we must evaluate the soundness of banks."

Brent Fredrick, a business owner operating five small businesses including restaurants and food trucks in Minneapolis, Minnesota, recently found himself contemplating whether to withdraw assets deposited in a major bank. This was because, following the collapse of Silicon Valley Bank (SVB), a key funding source for U.S. startups, and the subsequent failures of Signature Bank and others, he began to distrust banks.

After narrowing down potential banks to transfer his funds to, Fredrick examined their visions and balance sheets to assess their financial soundness. He concluded that larger banks actually posed bigger problems and decided to withdraw his funds to deposit them in smaller banks.

Seeking Refuge in MMFs

Silicon Valley Bank logo. [Image source=Reuters Yonhap News]

The Wall Street Journal (WSJ) reported on the 20th (local time) that small businesses in the U.S. have started devising asset management strategies in the wake of the SVB collapse.

As the banking crisis in the U.S. spread to global financial markets, small U.S. businesses that had concentrated their cash in specific banks began diversifying their funds. Some placed their money in money market funds (MMFs) and are waiting to see how the fallout unfolds.

According to WSJ, from the 10th to the 15th, following the FDIC's takeover of SVB, MMFs saw an inflow of $120.93 billion over the week. This was the largest weekly inflow since April 2020. Especially after the 13th, when deposit withdrawals became possible due to U.S. authorities' depositor protection measures, MMFs attracted the highest amount of funds ever recorded. Sean Collins, Chief Economist at IC, explained, "It appears investors are seeking alternatives to manage funds instead of some banks."

Major foreign media analyzed that "depositors are flocking to MMFs because they can expect additional interest income and do not have to worry about bank risks."

Let's Split It for Now

Silicon Valley depositors are lined up in front of a bank branch.
[Image source=UPI Yonhap News]

Some are unable to trust banks and are rechecking the financial soundness of the institutions where their funds are deposited, or moving funds from small banks to large banks.

Gabe Edshear, who runs a concierge business in Dallas, Texas, received a confirmation call last week from a bank official assuring him that the financial soundness of the bank holding his funds is secure. Gabe plans to further investigate how the bank raises funds and where the money is stored.

Griffin, CEO of Blue Horizon Energy, an industrial solar power company in Minnesota, also revealed that he is considering withdrawing assets from his current bank and temporarily depositing them in another bank for a month or two.

As distrust toward small banks spreads among depositors, billions of dollars in deposits have reportedly flowed into large banks such as JPMorgan Chase and Bank of America since the SVB collapse.

However, experts have expressed concerns that if small business depositors move their funds from small banks to large banks due to the SVB fallout, it could cause greater long-term damage. Regional small banks have supported loans to stores and small businesses, benefits that large banks do not provide.

Some large banks, including Bank of America, have already tightened lending standards since the end of last year due to rising funding costs caused by interest rate hikes.

Ami Kassar, CEO of MultiFunding, a corporate loan advisory firm, warned, "If customers move funds from small banks to large banks, their loan options will decrease," adding, "Such choices could ultimately harm small and medium-sized businesses' ability to secure funding."

This content was produced with the assistance of AI translation services.