Deposits in US banks fell sharply and loans fell by the most in nearly two years, amid financial turmoil caused by the failure of several banks in the past month.
Commercial bank deposits fell by $125.7 billion in the week ending March 22marking the ninth consecutive period of decline, according to data released on Friday by the Federal Reserve. In the banks established in the country, deposits decreased by 84 thousand million dollars, Which reflects a decrease in the 25 largest institutions. Increase deposits in small banks.
Total loans fell by $20.4 billion, the largest decline since June 2021, due to a decline in commercial and industrial loans. Residential and commercial mortgages and consumer loans increased from the previous week.
Depending on the size of the bank, loans declined in the largest banks and rebounded in the smallest companies.
The report, known as H.8, covers the first two weeks after the Silicon Valley bank’s demise, and it will take time to assess the full impact of the subsequent financial turmoil and deposit outflows from small and medium-sized banks.
Figures released Thursday showed that banks cut lending from two federal support loan facilities in the latest week, in a sign that demand for liquidity may stabilize.
The 25 largest national banks account for about three-fifths of lending, although in some key areas – including commercial real estate – smaller banks are the largest providers of credit.
What Bloomberg Economics says
stuartpoolAn economist at Bloomberg Economics said:
- “Another week of large outflows from the banking system likely reflects corporate treasury departments’ preference for higher-yielding money market funds, rather than fear of regional bank failure.”
- “The fragility of the banking system appears to have been contained – with reliance on the Fed’s lending facility declining between March 22-29 – but we still expect credit conditions to tighten in the future.”
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Lending conditions were already tight before the banking crisis, a year after the Federal Reserve raised interest rates, and economists predict that access to credit will become more difficult for businesses and households.
Other key data
- Bank credit decreased by more than 76 billion US dollars
- Consumer loans increased by US$4 billion.
- Commercial and industrial loans, which are considered an indicator of economic activity, declined by about $30 billion.
- Total assets, which include cash in safes, as well as balances owed by depository institutions and the Federal Reserve, decreased by $123.5 billion.
- Total liabilities decreased by $105.3 billion.
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US authorities responded to the bank failures within days to boost confidence in the financial system, providing additional support to banks in need of liquidity.
Prior to this infusion of support, cash assets held by banks – as a proportion of their total assets – had fallen to their lowest levels in three years.
The Fed’s report on the assets and liabilities of commercial banks includes credit breakdown by destination — such as consumer loans, real estate, and business loans — as well as by categories based on bank size.
The Fed noted in the report that the numbers for the week ending March 15 were adjusted to reflect the way the FDIC bridge banks were incorporated into the small bank data.
With assistance from Reade Pickert
Read more at Bloomberg.com
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