The move to larger banks in the wake of SVB and Signature’s collapses may indicate that consumers feel larger banks — with deeper pools of cash in deposit — are safer options than their smaller counterparts.
While the statement by Yellen is true, it is essentially meaningless. The second news gets out that some bank failed and some depositors took a haircut, there will be a run on pretty much ALL banks. And that is the epitome of “systemic”, so if it ever happens, it’ll have to be nipped in the bud, and no depositor will ever take a haircut … so it can’t ever become a big story and thus won’t become systemic.
1: The Bank of Joe is insolvent. You need to wait a bit before the FDIC makes your deposits accessible. Maybe a new bank takes over your bank, and closes your favorite branch, so you have to drive across town, or get a new ATM card, or jump through some other hoops.
2: The Bigly Bank never goes insolvent, because the government props it up, so your access to your money is never interrupted.
I went through this exact process in the roughly 2015-18 timeframe. I was using a small regional bank that had expanded to here (2010?) and was essentially based in a chain grocery store in this area. They did ok for some years.
Then the grocery store chain was sold to a local competitor and most of the banks’ branches in those stores closed. FDIC closed the bank and sold its assets to a bank in the southeast US. While this was going on, everything worked fine. Cards, deposits, payments, checks, whatever–proceeded as normal.
When the new owner took over all the accounts (more than just checking and savings), there was no problem that I could see. I use the same checks now as before the changeover. And so on. This is because the banking system is now digital–which means the routing number for the old bank is automatically routed to the new bank by the central bank clearing system.
I am familiar with it because I worked a short while at the NOC (NWNB Ops Center in downtown Mpls, MN) in the late 1980s. They are now called Wells Fargo. I was dealing directly with problem deposits (some were simple errors, some outright criminal fraud such as counterfeit checks). The “new” quick-notification system went live while I was there. Non-cleared checks over a certain amount ($2500? $5k?) had to be reported back to the depositing bank within a day or two (from memory–subsection J?). So the bank installed a stand-alone terminal that was set up to receive those notices so they could be acted upon immediately when received.
From my own experience at my bank, I think there was a day or so when the changeover actually occurred and customers had to wait for the bank clearing system to have the changes actually take place. Social Security and other bank-to-bank transfers were automatically adjusted and arrived on time. Smooth changeover overall.
Here’s my story: I opened an account at Michigan National some decades ago. MN merged with Standard Fed. All was well. I had the same routing number and account number. Standard Fed was taken over by LaSalle. All was still well. LaSalle was taken over by Bigly Bank. Then, I was glad I had relocated from Kalamazoo to metro Detroit, because Bigly Bank didn’t want to bother with operations in jerkwater towns, like Kalamazoo. Bigly Bank kept it’s operations in metro Detroit and Grand Rapids, but sold it’s small town branches to some jerkwater Indiana bank. If I was still in Kalamazoo, and wanted a physical bank presence, like an ATM, I would have to open new accounts somewhere else and transfer all the loot from Bigly Bank. The lesson being, don’t count on new management having the same priorities and mission as old management.
I make it a point to ALWAYS have accounts at two banks. That way, if one of them “goes stupid” (typically due to mgmt), the other bank is already set up and ready to go. That also means a minimum of $250k per bank is protected by FDIC or the S&L or credit union equivalent. Have had two banks do “stupid mgmt tricks” thus far–and I bailed on them ASAP. One started imposing fees on basic checking accts–when their whole schtick (for decades) had been the “no fee” bank account for most people (but not for business). Guess how long the new “fee policy” lasted… I bailed the first month I was charged–and never looked back. Their number of accounts dropped massively (seriously), as did the amount of money the bank managed (cash float).
Mgmt error does not include the FDIC-closed bank because they would have been fine if allowed to keep operating where they already had branches in the stores. However, the buyer was a competing chain in the area using a different bank to be in-store for shoppers. So it was a quick death for the bank once the store sales/closings took place.