Tighter belts for smaller banks could count as a big problem for some parts of the U.S. The failures of Silicon Valley Bank and Signature Bank as well as questions about First Republic Bank’s future have cast a sudden pall on the banking sector. An emerging concern is that customers at community and regional banks, worrying that their deposits aren’t safe, might pull their money, putting it into money-market funds or accounts at bigger banks. Regulators’ move last Sunday to protect depositors at SVB and Signature, and big banks coming together on Thursday to shore up First Republic with a $30 billion infusion of deposit cash, were aimed at avoiding such an eventuality. With hope, these fire lines will hold. Even if any outflows are halted or reversed, small banks may now grow cautious, such as by simply sitting on more of their cash as a defensive measure. Doing so would effectively reduce their capacity to extend credit.
Source: WSJ.com: Markets
