Deposit stability and bank resilience

Several high-profile bank failures in the US have generated headlines for the past year, drawing attention to the risks lurking on bank balance sheets. The first and largest of these, Silicon Valley Bank (SVB), fell because the market value of its fixed income investments, once reliably stable, dropped substantially as interest rates ascended sharply. More recently, New York Community Bank (NYCB) required a recapitalization led by outside investors. The value of its large commercial real estate loan portfolio plummeted as office occupancy rates remained stubbornly depressed in the post-COVID environment. The common thread across these failures was deposit flight.

Simon-Kucher recently examined the relationship between deposit flight and bank failure to assess how much of the banking sector might be at risk of similar runs, determine what can be done to strengthen deposit stability, and assess the impact on bank profitability. We see three lessons for the banking industry:…