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.

Meeting of the U.S. Federal Reserve Board in September 2022. Source.

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.