UK depositors pull $13.8bn out of banks after SVB crisis

BLOOMBERG

British households and businesses pulled almost £11 billion ($13.8 billion) out from banks in March as panic spread from the collapse of Silicon Valley Bank (SVB) and the takeover of Credit Suisse Group AG.
Households took out almost $6.32 billion (£5 billion) from bank accounts in the first decline in deposits in almost five years, Bank of England (BOE) data showed. Business deposits also fell (£5.8 billion), the sharpest drop since last June.
The figures suggest there was some minor contagion to the UK after the banking sector was rocked by crises on both sides of the Atlantic. Central banks have insisted that their banking systems are sturdy, but signs of turbulence in the US continued with the sale of First Republic Bank and a plunge in PacWest Bancorp shares.
“March’s money and credit data show that households and businesses have become less willing to hold bank deposits since the collapse of SVB on March 10,” said Sam Tombs, chief UK economist at Pantheon Macroeconomics. He said there were “much clearer signs of contagion from US bank failures than we had expected to see.”
It’s possible that the drop in deposits could be good news for the economy — a sign that households are using pandemic savings to boost spending and that they’ve become more confident in making major purchases.
Households increased their holdings in government-backed National Savings and Investment accounts by £3.5 billion in March, the highest since September 2020. It suggests a flight for safety as NS&I accounts provide households full protection compared to the £85,000 guarantee for savings in banks.
An official on the BOE’s banking supervision division said UK households are under strain from a cost-of-living squeeze and that UK banks need to prepare to cope with more bad loans.
“Firms need to take action now to be prepared both to support their customers and preserve their resilience should the stress that we are observing result in a marked deterioration in their credit portfolios,” David Bailey, executive director of supervision of UK deposit takers, said at an event hosted by the Building Societies Association.
“The outlook for credit risk remains uncertain and we therefore expect firms to be forward-looking in how you manage the risks this presents,” he said. “We are doing the same.”
Overall more than £18 billion was taken out of banks in March but the overall figure also includes £7.6 billion
from “non-intermediate other financial corporations,” which includes pension funds.
Ashley Webb, economist at Capital Economics, said this was likely driven by “a continuation of pension funds moving money back into gilts following Liability Driven Investment crisis” that erupted in September, October.