US Banks Brace for Tough Q1 Amid Deposit Crisis and Reserve Boosts

Smaller banks are expected to face a tough first quarter due to a deposit crisis caused by the pandemic. As customers withdrew their money and put it into higher-yielding accounts or invested in the stock market, smaller banks struggled to maintain liquidity. This has led to a decrease in lending and a rise in funding costs, putting pressure on their profitability. Meanwhile, larger banks have been able to weather the crisis better due to their size and access to capital markets.