Reports from FDCI Say that US Depositors Withdraw Record $472 Billion
According to the FDIC or “Federal Deposit Insurance Corporation”, depositors in the United States pulled out a record-breaking $472 billion during the first quarter of 2023. This marks the highest amount of outflows ever recorded by the agency. The decrease in deposits can be attributed primarily to uninsured funds, while insured deposits actually rose by 2.5%, reaching a total of $255.1 billion, despite the failures of Silicon Valley Bank and Signature Bank. The decline in deposits was offset by the expansion in wholesale funding.
The FDIC Reports
Bank profits in the first quarter of the year increased by 16.9% to $79.8 billion, according to the FDIC. However, the acquisition of two failed firms had a significant accounting impact, resulting in effectively flat profit levels. While banks were successful in reducing unrealized losses and maintaining strong capital ratios, there were deposit outflows for the fourth quarter in a row, which increased during this period. Additionally, the FDIC identified four new firms as problem banks, bringing the total to 43 firms with assets worth $58 billion.
First Republic Bank in San Francisco, California has been shut down by the California Department of Financial Protection and Innovation. The FDIC has been appointed as the receiver and has projected that the Deposit Insurance Fund will incur a cost of around $13 billion.
FDIC Protecting Depositors
To safeguard depositors, the FDIC has engaged in a transaction known as purchase and assumption with JPMorgan Chase Bank. As a result of this agreement, all deposits previously held by First Republic Bank are now under the control of JPMorgan Chase.
The former First Republic Bank’s single-family, residential, and commercial loans that were bought by the JPMorgan Chase Bank along with FDCI, are now under a loss-share agreement. This means that both entities will share in the profits and losses of the asset pools covered by the agreement, with the FDIC acting as the receiver.
The FDIC’s latest report also highlights their efforts to strengthen public trust in the US banking system. With recent bank collapses causing financial instability concerns, the FDIC has conducted a comprehensive analysis of the deposit insurance system and proposed potential reforms.
The report emphasizes the importance of deposit insurance in preventing bank failures and maintaining financial stability. The FDIC recommends focusing coverage on specific areas as the most effective means of achieving the objectives of deposit insurance. This approach ensures the protection of depositors’ interests while keeping expenses under control.