U.S. Bank Deposits and Lending Both Dropped Last Week
In the wake of multiple bank collapses this month, US bank deposits showed a sharp decline while lending also dipped by the most in almost two years. According to data released by the Federal Reserve, commercial bank deposits plunged by $125.7 billion in the week ended March 22, marking the ninth successive period of declines. Meanwhile, domestic banks witnessed a fall of $84 billion in deposits, in line with a downward trend witnessed by the 25 largest domestic institutions. However, small banks experienced an increase in deposits. The figures also revealed that overall lending dropped by a substantial $20.4 billion, the most since June 2021, owing to a decline in commercial and industrial loans, but residential and commercial real estate loans and consumer lending saw growth.
The report, known as H.8, covers the first two weeks after Silicon Valley Bank’s collapse, and experts anticipate it will take time to evaluate the entire impact of the perturbing financial crisis and outflow of deposits from mid-size and small banks.
By bank size, lending dipped at larger banks but showed some recovery at smaller firms. Notably, the 25 largest domestic banks are responsible for roughly three-fifths of all lending, although smaller banks are the primary credit providers in key areas, such as commercial real estate.
The bank failures were addressed by US authorities within days to restore confidence in the financial system, and extra support was rendered to banks requiring liquidity. Before this injection of support, the cash assets held by banks had fallen to the lowest levels in three years.
According to economists, lending conditions, which were already tightening before the banking crisis after the Fed’s interest rate hikes, may become more challenging for businesses and households.
The report also highlighted that bank credit dipped by over $76 billion, whereas consumer loans rose by $4 billion. Commercial and industrial lending, viewed as a gauge of overall economic activity, declined by almost $30 billion. Total assets, including vault cash, balances due from depository institutions, and the Fed, dipped by $123.5 billion, while total liabilities decreased by $105.3 billion.
Figures released last week showed that banks reduced their borrowings from two Fed backstop lending facilities in the most recent week, indicating that liquidity demand may be stabilizing.
The Fed’s report on assets and liabilities of commercial banks provides a breakdown of credit destination-wise, such as commercial, consumer, and real estate loans; categories based on bank sizes are also included.
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