OLIVIER DOULIERY

By Caroline Fohlin , Matthew Jaremski and Derrick Tran

In March of this year , the US witnessed the most significant bank run since the financial crisis of 2008 , when depositors of Silicon Valley Bank ( SVB ), many of whom held deposits above FDIC insured limits , started withdrawing funds due to growing fears of the bank ’ s insolvency . As a result , the state of California shut down the bank and turned it over to FDIC receivership . The panic also spread to other regional banks , such as First

JP Morgan acquired First Republic Bank and a portion of Silicon Valley Bank ’ s assets this spring after a bank run impacted several regional banks .

Republic Bank , Signature Bank and Silvergate Bank , which faced similar risks of devalued bond portfolios after the previous year ’ s Fed rate hikes , and raised concerns of a wider depositor run that could destabilize the entire banking system .

This spring ’ s events have revived concerns about concentration in the banking industry . Not only did many depositors move their funds into the largest banks , but as is typical , seized banks were sold off to other large banks . For example , JP Morgan acquired First Republic Bank and a portion of SVB ’ s assets , Community Bancorp purchased part of Signature Bank and many others either bought assets or stakes in troubled banks . These acquisitions increased the size and market share of the acquiring banks . Over the past two decades , JP Morgan has doubled its market share of total assets from 4.1 % to 8.2 %.

The increasing concentration associated with financial crises raises questions about the efficiency and stability of a highly concentrated banking system . Large banks may be able to weather downturns , but the concentration of funds in “ systemically important ” institutions , often referred to as “ too big to fail ,” can create financial fragility and increase the vulnerability of the entire system to crises . As a result , shocks experienced by these banks can have ripple effects throughout the nation via correspondent networks and counterparties . Oligopolistic banks may also face limited competition and exert market power on depositors and borrowers . At the same time , smaller banks , lacking the

30 FINANCIAL HISTORY | Summer 2023 | www . MoAF . org