Americans express concern about bank stability in wake of bank failures

In the wake of the collapse of Silicon Valley Bank (SVB) and Signature Bank, many Americans said they were worried about the banking industry. In fact, nearly one-third (29%) of consumers overall said they were “very concerned” about the stability of the banking system, according to a recent study by J.D. Power. Among those who knew about the closures at SVB and Signature Bank, that number rose to 34%.

However, Americans’ concern about the banking system differed depending on the size of their banks. 

“Notably, consumers banking with smaller, regional and mid-sized banks show consistently lower levels of concern about bank stability than those banking with larger, national institutions,” J.D. Power said. 

Here’s what percentage of Americans said they were “very concerned” about the stability of the banking system, based on the size of their bank, according to J.D. Power:  

• All banks: 29%
• National banks: 32%
• Regional banks: 31%
• Mid-sized banks: 21%
• Online only banks: 33%

“Conversely, local bank customers (23%), mid-sized bank customers (21%) and credit union members (19%) had the three lowest levels of concern, while those institutions have the bigger risk exposure,” J.D. Power said. 

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Is inflation slowing down? 

Inflation increased 5% year-over-year in March, marking a decline from its February increase of 6% and its June record of 9.1%, according to the consumer price index (CPI). 

“The overall level of inflation recognition fell slightly to 63%,” J.D. Power said in its report. “The percentage of customers that said the price of goods is increasing faster than their income also fell slightly for most customer segment groups but was largely in line with the previous months as well.”

To lower inflation, the Federal Reserve has been increasing interest rates since last year. And despite recent bank closures, the Fed increased interest rates by 25 basis points during its May meeting, bringing the federal funds rate to a targeted range of 5% to 5.25%.

“With today’s action, we have raised interest rates by five percentage points in a little more than a year,” Fed Chair Jerome Powell said to reporters at a press conference. “We are seeing the effects of our policy tightening on demand in the most interest rate-sensitive sectors of the economy, particularly housing and investment. It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation.”

The Fed hinted at a pause in interest rate hikes, but Fed Chair Jerome Powell said that the central bank would continue to lift rates if needed and that cuts were unlikely to come this year. 

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Why did SVB fail? 

While higher interest rates have taken a toll on some banks and consumers, the recent failures of banks like SVB have largely been tied to poor internal management, according to some experts. 

“SVB’s customer base was extremely poorly diversified, resting largely on health and tech startups in the Silicon Valley area, an industry that collectively lost $7.4 trillion in one year,” an analysis by American Action Forum said. “SVB customers began to pull their deposits from SVB in order to meet their liquidity needs, and SVB needed a fast fix to cover this shortfall. 

“Selling its long-term Treasury bonds before they matured, at such a terrible market price, was the warning sign to SVB’s venture capitalists that balance sheet liquidity was dire, sparking a bank run as depositors sought to withdraw their assets,” American Action Forum said.

The Fed also claimed that its own supervisors failed to “take forceful enough action” to regulate SVB, while also criticizing SVB’s top decision makers.

“Regulatory standards for SVB were too low, the supervision of SVB did not work with sufficient force and urgency, and contagion from the firm’s failure posed systemic consequences not contemplated by the Federal Reserve’s tailoring framework,” Michael S. Barr, vice chair of supervision at the Board of Governors of the Federal Reserve System, said in a statement. 

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