The failure of 2 banks makes small banks nervous because of the loss of customers. NPR

In the wake of the Silicon Valley bank collapse, some customers are moving their money from smaller, regional banks to larger lenders. And it could change the banking landscape.

LEILA FADEL, presenter.

Shares of small regional banks regained some ground yesterday after Monday’s sharp decline.


But they face questions about their sustainability and fear that depositors will take their money elsewhere.

FADEL: NPR’s David Gura joins us now to explain. Good morning.


FADEL: Hello, David. OK, so stocks are recovering. The administration has announced a major bailout. But people are still skeptical of small banks. What drives fear?

Gura: Yes, the twin failures of those two banks were so shocking that even after President Biden assured Americans on Monday morning that the banking system is safe, many are still overly cautious. Denell(ph) is one of them. He is a real estate agent in California. He asked us not to use his last name because he is discussing his finances. And on Monday, Denell was standing in line at a First Republic Bank branch in Los Angeles. He was there waiting to withdraw most of his money. And Denell told us he plans to move it to a bigger bank where he believes it will be safer.

DANEL: So I think just moving forward, maybe we’ll always be, like, a little bit more diversified and a little bit more cautious about being with, you know, a smaller bank.

GOURA: Now, no small regional bank wants to hear that, Leila. So right now, they’re working extremely hard to keep customers from going elsewhere. Silicon Valley Bank and Signature Bank were pretty unique. They had large amounts of uninsured deposits, and they served very specific segments of the population. And I have to say that there is no small bank problem at the moment. But a bank analyst told me this is a show-off moment for banks. They are under pressure to show their investors and customers that they are in good shape.

FADEL: So how do they do it? How do they do business?

Gura: Bankers take a long, hard look at their balance sheets and how their money is invested. And some of them are trying to build a buffer in case they hit the bank. First Republic, which is based in San Francisco, actually went to JPMorgan Chase, one of the big banks, over the weekend for financing anyway.

Nathan Stovall is head of financial institutions research at S&P Global Market Intelligence. And Stovall told me he expects many banks will want to hold more cash. They will be more conservative in the future.

NETAN STOVAL. I think you’re going to see banks be a lot more cautious when it comes to making new loans right now because the easiest way to keep the cash you have is to not give it out.

Gura: Now, this week, we’ve seen regional bank leaders try to push back against negative sentiment. They go directly to their customers, according to Rebecca Romero Rainey, executive director of Independent Community Bankers of America. And Rainey says this is their message.

REBECCA ROMERO RAINEY. Take a breath. Let’s talk. Let’s focus on the facts.

GURA: And, Leila, banks have additional protection here. On Sunday, the Federal Reserve provided emergency funding for other lenders in case they get into trouble. It’s good for them to have, but obviously a last resort for banks because of the stigma that is likely to arise in favor of that funding.

FADEL: So what might be the long-term impact on the banking landscape?

Gura: We may see greater consolidation of small regional banks. According to Nathan Stovall, there are about 4,500 of them in this country. But most small business loans in the U.S. come from community banks, and banking with them appeals to many people and businesses because they’re smaller, they’re closer. You can develop close relationships with individual bankers. And that’s what these banks are trying to remind customers as they face new scrutiny.

Ultimately, I will say that there will likely be more oversight of all banks. The former FDIC chairman was on NPR yesterday, and Sheila Bair is calling for every bank to undergo stress tests, regular examinations from regulators, Leila, to make sure they can weather the crisis.

FADEL: NPR’s David Gura. Thank you, David.

GURA: Leila, thank you.

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