Banks’ Market Values Plunge Thursday as Depositors Flee for Higher Rates

Investors’ concerns about banks’ unrealized losses on securities caused financial stocks to plunge Thursday.

Compared to the previous day, JPMorgan’s market value dropped by $22 billion, Bank of America’s by $16 billion, Wells Fargo’s by $10 billion and Citigroup’s by $4 billion — meaning the top four U.S. banks lost a combined $52 billion of market capitalization, The Wall Street Journal (WSJ) reported Thursday (March 9).

The report attributed this to investors responding to SVB Financial Group selling part of its securities portfolio at a $1.8 billion loss because it has seen an outflow of deposits.

There’s more than $600 billion in unrealized losses on securities holdings across the banking industry, because when rates were low, banks put their extra cash in bonds. Now, the prices of bonds have fallen because rates have risen, according to the report.

The banks only have to sell their bonds at a loss if they have an outflow of deposits — as happened at SVB Financial Group — but investors’ concerns that that could happen caused the price of financial stocks to dive, the report said.

Banks have had to hike their deposit rates to woo consumers back from higher-yield alternatives, as they’ve seen a historic drop in deposits.

Commercial bank deposits have fallen for the first time since 1948 as customers move to things like Treasury bills and money market funds, Bloomberg News reported Monday (March 6).

This has led banks to begin lifting their own rates, especially on certificates of deposit (CDs), the report said.

With consumers pulling their savings from big banks as they chase high-yield savings, there’s an opportunity for digital-first financial institutions to pick up new customers.

A good share of the funds being pulled out of the standard non-interest-bearing accounts offered by most big banks will likely be transferred to products such as CDs and high-yield savings accounts offered by some traditional financial institutions.

Presumably, however, as PYMNTS reported Feb. 14, a large portion of bank customers may be considering, or have already jumped to, making a digital-first bank their primary financial institution. The main driver for consumers making the switch are the higher interest rates offered on many neobanks’ regular checking and savings accounts.