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2 bank failures are making smaller banks nervous about losing customers


Shares of small regional banks regained some ground yesterday after falling sharply on Monday.


But they're facing questions about their stability and fears that depositors will take their money elsewhere.

FADEL: NPR's David Gura joins us now to explain. Good morning.


FADEL: Hi, David. OK, so shares are regaining ground. The administration announced a major rescue plan. But people are still feeling skeptical of smaller banks. What's driving the fear?

GURA: Yeah, the twin failures of those two banks was so shocking that even after President Biden assured Americans on Monday morning the banking system is safe, many people are still being extra cautious. Denelle (ph) is one of them. She's a real estate agent in California. She asked us not to use her last name because she's discussing her finances. And on Monday, Denelle was standing in line outside a First Republic Bank branch in Los Angeles. She was there waiting to withdraw most of her money. And Denelle told us she plans to move it to a larger bank where she believes it will be safer.

DENELLE: So I think just moving forward, maybe we'll always be, like, a little bit more diversified and a little bit more cautious about, you know, being with a smaller bank.

GURA: Now, no small regional bank wants to hear that, Leila. So right now, they're working extremely hard to keep customers from going elsewhere. Silicon Valley Bank and Signature Bank were pretty unique. They had a large uninsured set of deposits, and they catered to very specific segments of the population. And I should say, right now, there is no indication any small bank is in trouble. But a bank analyst told me this is a show-me moment for banks. They're under pressure to show their investors and their customers that they're in good shape.

FADEL: So how do they do that? How are they making the case?

GURA: Bankers are taking a long, hard look at their balance sheets and how their money is invested. And some of them are trying to build up a buffer in case they were to face a bank run. First Republic, which is based in San Francisco, actually went to JPMorgan Chase, one of the big banks over the weekend, to line up financing just in case.

Nathan Stovall is the head of financial institutions research at S&P Global Market Intelligence. And Stovall told me he expects many banks will want to keep more cash on hand. They're going to be more conservative going forward.

NATHAN STOVALL: I think you're going to see banks be a lot more cautious when it comes to making new loans right now, because the easiest way to preserve the cash you have is to not lend it out.

GURA: Now, this week, we've seen the heads of regional banks trying to push back against negative sentiment. They're reaching out to their customers directly, according to Rebeca Romero Rainey, who's the CEO of the Independent Community Bankers of America. And Rainey says this is their message.

REBECA ROMERO RAINEY: Take a breath. Let's have a conversation. Let's focus on the facts.

GURA: And, Leila, banks have some additional protection here. The Federal Reserve, on Sunday, made emergency funding available to other lenders just in case they get into trouble. Good for them to have, but, obviously, a measure of last resort for banks because of the stigma that would likely come with tapping into that financing.

FADEL: So what could the long-term impact be on the banking landscape?

GURA: We could see more consolidation of small regional banks. According to Nathan Stovall, there are about 4,500 of them in this country. But the majority of small business loans in the U.S. come from community banks, and banking with them appeals to a lot of people and to businesses because they're smaller, they're nearby. You can develop close relationships with individual bankers. And that's what these banks are trying to remind customers of as they face new scrutiny.

I'll say, lastly, there's likely to be more scrutiny of all banks. The former chair of the FDIC was on NPR yesterday, and Sheila Bair is calling for every bank to undergo stress tests - regular exams from regulators, Leila, to make sure that they'd be able to weather a crisis.

FADEL: NPR's David Gura. Thanks, David.

GURA: Leila, thanks. Transcript provided by NPR, Copyright NPR.

Leila Fadel is a national correspondent for NPR based in Los Angeles, covering issues of culture, diversity, and race.
Based in New York, David Gura is a correspondent on NPR's business desk. His stories are broadcast on NPR's newsmagazines, All Things Considered, Morning Edition and Weekend Edition, and he regularly guest hosts 1A, a co-production of NPR and WAMU.