The Federal Reserve and the Slow-Moving Bank Run
U.S. banks are seeing unrealized losses rise while customer deposits flee. The sudden wave of bank failures ultimately originates in a reversal in government interest rate policy.
In March 2023, Silicon Valley Bank (SVB) collapsed after a massive bank run. By the end of the month, the bank that had boasted a peak market capitalization of $43 billion just a year earlier was worth almost nothing. Two other banks, Silvergate Bank and Signature Bank, collapsed in the same month. As of April 2023, deposits in commercial banks were around 5% lower than one year previously.1 This is the largest yearly decline in deposits since the Great Depression.2 On May 1, 2023, First Republic Bank was closed by the government then sold to JPMorgan, making it the second-largest bank to fail in U.S. history.3 A key underlying cause of the sudden wave of bank failures is the set of new policies embraced by central banks in response to the global financial crisis of 2007-08.