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Federal Reserve researchers said banks that share their name with a failed bank experience a half-percent drop in transaction deposits relative to banks with similar characteristics but different names.
Details: In a Trademarks in Banking paper, Fed researchers said:
One in five U.S. banks share a similar name, which increases the likelihood of confusion among customers in the event of a shock to a similarly named bank.
The drop in deposit effect doubles for failures that are covered in media.
When distinguishing banks is more costly due to similar trademarks, depositors are more likely to confuse their banks' condition.
ICBA View: ICBA discussed potential issues arising from similarly named banks in a 2023 comment letter to the Fed about master accounts.