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Bank failures have some small businesses reconsidering where they park their money

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A person holds a phone with both hands on a gray couch. On the phone, a banking app is displayed.

In addition to the idea of larger banking institutions being "to big too fail," they also tend to have more sophisticated technology than smaller banks. JGalione/Getty Images

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Treasury Secretary Janet Yellen made some waves on Capitol Hill this week talking about the government’s decision to cover uninsured deposits after the collapse of Silicon Valley Bank and Signature Bank. On Thursday, Yellen said the Department is “prepared to take additional actions if warranted.”

The bank failures have focused regulators and policymakers on the risk of contagion. And that risk has prompted some small business owners to think about their own bank accounts

The Monday after Signature Bank collapsed a couple of weekends ago, staff at La Salle State Bank in Illinois pulled up a list of their largest depositors.

“We started making phone calls to them to see if they had any questions that we could address,” said Chris Duncan, the bank’s chief lending officer, “to reassure them that our situation is holistically different than the situation at some of the banks that were struggling.”

The message was that the bank still has plenty of deposits on its balance sheet, he said. “If we can explain that there really is not anything to fear in the banking industry today, if we can get that message out there, I’m hoping that people’s fears of a liquidity crisis will subside.”

Banks need to hang on to their customer deposits so they can keep making loans. And smaller banks play a vital role in supporting local economies, said Nate Tobik, the founder of CompleteBankData. Just look at what they did when the Paycheck Protection Program rolled out early in the pandemic.

“The small banks were able to get that up and running and help customers right away,” he said. “They’re really the backbone of communities.”

Even so, Tobik said he’s planning to open a new account for his business at a bigger institution. That’s because history has shown the government’s willingness to save bigger banks that it considers too big to fail.

“The government has essentially said your money is guaranteed there, whereas at some of these smaller banks, that does not seem to be the case,” Tobik said.

Other business owners say they’re sticking with bigger banks because they tend to have more sophisticated technology.

“You know, obviously, having an app that’s really easily accessible, it’s very easy to log in — I’m able to see how much money’s in there, in which accounts,” said Jackie Laundon, who runs a public health consultancy.

Laundon said she started banking with a bigger institution before the pandemic. And she’s planning to keep her money there, in large part, because she can quickly and easily move it around.

“When you go into business for yourself, the hard part comes from being the owner. The easy part should be where and how you access your money,” she said.

And Laundon said the recent bank failures have shown that having easy access to your money is important.

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