Keeping interest rates on deposits near zero is becoming increasingly untenable, with the collapse of Silicon Valley Bank, Signature Bank and Silvergate Capital Corp. putting savers on high alert for better and safer alternatives. But raising rates enough to compete with money-market funds is also a nonstarter that would crush profit margins and potentially roil stock prices.
It’s forcing a rethink about the traditional role lenders have had in the US financial system and the economy — and whether there are just too many of them.
The turmoil has underscored that there are other places people and companies can park their spare cash and get a better interest rate. Over the past three weeks, what had been a slow flight from low-yielding savings accounts has become a turbocharged sprint to higher-earning alternatives. And smaller banks are feeling the pain much more acutely than their giant peers. Deposits at such lenders slumped $120 billion in the week ended March 15, while those for the 25 largest firms rose almost $67 billion, Federal Reserve data showed.
Source : Flight to Money Funds Adds to Pressure on Small Banks