The recent outflow of deposits from the U.S. banking industry continues, but small banks are starting to stop the bleeding, and deposits have begun to stabilize and increase. Data show that as of March 22, the size of deposits of all U.S. commercial banks fell by $ 125.7 billion again, for the ninth consecutive week of decline, of which more than a third of the approximately $ 300 billion in deposit outflows occurred in just two weeks after the collapse of Silicon Valley Bank. The reduced demand for emergency loans from the Federal Reserve and the increase in deposits at smaller banks may signal that the initial turmoil in the U.S. banking sector is subsiding. The large outflows from the banking system may reflect a preference for high-yielding money market funds in the corporate finance sector rather than panic over regional bank failures.
Risks may lurk behind the phenomenon of climbing deposit outflows from large banks. There have been two distinct waves of outflows that have put pressure on banks’ balance sheets. The second wave of deposit outflows may be more severe as bank customers realize that money market funds can offer higher interest rates. Rating agency S&P Global has downgraded the outlook on Bank of America, JPMorgan Chase, PNC Financial Services Group and Truist Financial from positive to stable. In addition, bank loans have fallen at the largest rate in nearly two years, and this banking crisis is also affecting commercial lending.
For detailed inside information, please refer to the following:
April 2 (Editor Xiaoxiang) – The sudden collapse of Silicon Valley Bank and Signature Bank since March has sparked industry concerns about a possible significant outflow of deposits from U.S. banks. And according to the latest H.8 report released by the Federal Reserve this Friday (March 31), the decline in deposits at U.S. commercial banks as of the week of March 22 has still not been stopped, although the momentum of people fleeing from small banks has slowed significantly, the big banks are starting to feel more pressure……
Deposits at all U.S. commercial banks fell by another $125.7 billion in the week ended March 22, the ninth straight week of declines, according to the data. However, the figure is down about $50 billion from the record $174.5 billion deposit outflows in the first week after the collapse of Silicon Valley Bank and Signature Bank.
Still, that leaves total deposits nearly $860 billion below last April’s record high, with more than a third of that outflow – about $300 billion – occurring in just two weeks after Silicon Valley Bank announced its collapse on March 10.
Small banks starting to stop the bleeding?
Compared to the previous week, one change in the Federal Reserve’s latest commercial bank deposit data apparently quickly caught the industry’s attention – that is, after the initial massive deposit outflow, small banks began to stabilize or even increase their deposits, while the top 25 banks, which had received significant deposit inflows the week before, became the top 25 banks in the latest report. In the latest report, the top 25 banks, which had experienced significant deposit inflows the week before, became the “leaders” in deposit outflows.
Data show that in the week ended March 22, deposits at small U.S. banks rose slightly to $5.386 trillion from $5.381 trillion last week.
Meanwhile, deposits at the top 25 banks by assets fell to $10.65 trillion from $10.74 trillion, a total decrease of nearly $90 billion. Deposit outflows from foreign banks with operations in the U.S. also contributed to the accelerating decline in deposits at all commercial banks during the week.
Some industry insiders say the reduced demand for emergency loans from the Federal Reserve and the increase in deposits from smaller banks may signal that the initial turmoil in the U.S. banking sector is subsiding.
In response to these phenomena, economist Stuart Paul argues that “the large outflows from the banking system may reflect a preference for high-yielding money market funds in the corporate finance sector rather than a fear of regional bank failures. Vulnerabilities in the banking system also appear to have been contained: reliance on the Federal Reserve’s lending facilities also declined between March 22 and 29.”
The U.S. banking sector reduced borrowing from the Fed’s two credit arrangement tools in recent weeks, suggesting that liquidity needs may be stabilizing, according to relevant balance sheet details provided by the Fed on Thursday.
For the week ended March 29, borrowing by U.S. financial institutions totaled $152.6 billion, down from $163.9 billion in the previous week. Of this amount, borrowing from the Fed’s traditional credit arrangement tool, the discount window, was $88.2 billion, while borrowing from the Bank Term Funding Program (BTFP) was $64.4 billion.
Banking troubles remain unresolved
Of course, while small banks are “stopping the bleeding,” we obviously can’t ignore the risks that may lie behind the escalating deposit outflows from large banks.
In fact, the latest change in deposit data is very similar to the point made by Joseph Abate, senior fixed income strategist at Barclays, in a report released earlier this week – that there are two distinct waves of capital outflows that are putting pressure on banks’ balance sheets in the wake of the banking crisis, the first of which is related to depositors’ initial The first wave was related to the initial concerns of depositors about bank solvency, and it is likely that this wave is “coming to an end”.
But right now, the real trouble may come from the second wave of deposit outflows – as bank customers realize that money market funds can offer higher interest rates, more deposits may be flowing into this pool, and the Silicon Valley bankruptcy crisis may have made the public realize that current deposit rates are low… …
Ratings agency S&P Global has lowered its outlook on Bank of America, JPMorgan Chase, PNC Financial Services Group and Truist Financial from positive to stable following the release of the Federal Reserve’s report on Thursday.
S&P Global believes that “increased market volatility” is not good for the banking sector. We have revised our outlook on four large U.S. banks to stable from positive, as we believe that current market and economic conditions reduce the likelihood of an upgrade in the current environment.”
As bank deposit outflows continue and the gap between bank deposit rates and money market fund yields becomes more pronounced, it is also clearly raising a new question: will banks start competing for deposits in the future?
Leading financial blog site zerohedge points out that if smaller banks are forced to join the “race to the bottom”, their profitability will collapse even further. This may explain why regional banks have been unable to make a significant rebound ……
Bank lending also fell the most in nearly two years
The Federal Reserve’s latest H.8 report also shows that the current banking crisis is also affecting commercial lending. For the week ended March 22, overall loans to U.S. commercial banks fell $20.4 billion, the largest decline since June 2021.
Commercial and industrial loans, a measure of business activity, fell by nearly $30 billion, the most significant decline since June 2021. Residential and commercial real estate loans, as well as consumer loans, increased compared to the previous week, with consumer loans increasing by $4 billion.
Analysts pointed out that the overall sharp decline in the size of bank loans, mainly due to the tightening of credit at large banks. The 25 largest U.S. banks issued about 60% of the nation’s loans, Silicon Valley Bank and Credit Suisse’s previous experience, is making these banks tend to be cautious in lending.
Goldman Sachs Group previously predicted that in order to ensure liquidity, those smaller banks may also tighten lending standards, while consumers and businesses to make loans more difficult will further limit economic growth.
Many U.S. small and medium-sized enterprises may be the first to feel the pain, and usually issue fixed-rate debt, virtually unaffected by short-term interest rate fluctuations of large companies, small and medium-sized enterprises rely heavily on banks for direct financing, so they can feel the impact of the shock waves of the current banking crisis, in real time ……