US bank Deposits, Lending both drop last week

The US Bank Deposits and Lending Both Dropped Last Week Due to Turmoil.

The collapse of several banks this month triggered a downward spiral of deposits at US banks and decreased lending by the most in nearly two years.

Commercial bank deposits dropped by $125.7 billion in the week ended March 22, marking the ninth straight month of declines, according to data released Friday by the Federal Reserve. Deposits at domestically chartered banks fell by $84 billion, reflecting a decline at the 25 largest institutions. Deposits at small banks increased.

The most lending since June 2021 fell by $20.4 billion, due to a decline in commercial and industrial loans. Residential and commercial real estate loans, as well as consumer lending, increased from the previous week.

By bank size, lending dropped at larger banks and picked up at smaller firms.

The report, known as H. 8, includes the first two weeks after the demise of Silicon Valley Bank, and it will take time to assess the full impact of the financial turmoil and outflow of deposits from mid-size and small banks.

The figures released Thursday showed that banks have reduced their borrowings from two Fed backstop lending facilities in the past week, a sign that demand for liquidity may be stabilizing.

The biggest 25 domestic banks account for about three-fifths of lending, although in some key areas - including commercial real estate - smaller banks are the most important providers of credit.

Another week of large withdrawals from the banking system likely reflects corporate preference for higher-yielding money-market funds, not fear that regional banks might fail, according to corporate treasury departments preference for higher-yielding money-market funds. We expect credit conditions to tighten going forward, with reliance on the Fed s lending facilities declining between March 22 -- 29. The banks failures within a few days caused the US authorities to shore up confidence in the financial system and offer additional backstops for banks in need of liquidity.

The cash assets held by banks had fallen to the lowest level in three years before the injection of support.

Consumer, real estate and commercial loans as well as categories based on bank size are among the breakdowns of credit by destination, according to the Fed's report on assets and liabilities of commercial banks.

The Fed noted in the report that the figures from the week ending March 15 were revised to reflect the way FDIC bridge banks were incorporated into the small bank data.