Small Banks Under Strain as Flight to Money Funds Increases

The collapse of Silicon Valley Bank, Signature Bank, and Silvergate Capital Corp. has put savers on high alert for better and safer alternatives, leading to a flight from low-yielding savings accounts to higher-earning alternatives. This is adding to the strains on small banks, which are feeling the pain much more acutely than their giant peers. Deposits at such lenders slumped $120 billion in the week ended March 15, while those for the 25 largest firms rose almost $67 billion, Federal Reserve data showed. The move from bank accounts to money funds and other instruments is likely to put more cash in the pockets of long-suffering savers, but there is concern that a dearth of deposits will leave the US with a smaller number of community and regional banks who have less money to lend — and that in turn could hold back growth and worsen inequality.