Deposits at U.S. commercial banks rose toward the end of March for the first time in regarding a month, showing signs of stabilizing following the two biggest bank failures since the financial crisis rattled the banking system and rattled depositors.
Federal Reserve data released on Friday shows deposits at all commercial banks rose to $17.35 trillion in the week ending March 29, in seasonally unadjusted data, versus $17.31 trillion the previous week, figure revised down.
This is the first increase since the beginning of March and marks the end, for now, of a record flight of deposits triggered by the failures of Silicon Valley Bank and Signature Bank in the middle of the last month. The second and third largest bank failures in US history forced federal regulators to guarantee all deposits at both institutions and prompted the Fed to take emergency action to restore confidence in the banking system.
Deposits increased both in the 25 largest banks in terms of assets and in small and medium-sized banks. Smaller banks had been particularly hard hit by deposit withdrawals following successive bankruptcies, with some depositors shifting their cash to larger institutions, fearing that funds exceeding the federal insurance cap of $250,000 for each depositor would are threatened.
After more than a year of steep interest rate hikes by the Fed, intended to slow the economy to rein in inflation, last month’s banking turmoil has heightened fears that aggressive central bank tightening might triggers a recession.
Economists and policymakers are closely watching the Fed’s weekly snapshot of the financial condition of the nation’s banks, looking for signs that the outflow of deposits has stopped. They are just as carefully watching for signs that creditors might begin to restrict credit as a result, an action that might hasten the onset of an economic downturn or make it worse.
Indeed, overall U.S. bank credit has fallen by more than $120 billion in the past week, on an unseasonally adjusted basis, but much of the decline is due to banks dropping 87 billions of dollars of securities for the benefit of non-bank institutions, such as hedge funds. The Fed said banks had offloaded that amount of assets in each of the past two weeks, most of it in the form of Treasury bills and mortgage-backed securities.
The moves coincided with recent sales of various assets of the two failing banks under the leadership of the Federal Deposit Insurance Corp, but the Fed did not say whether that was the trigger for the sales.
In due course, however, lending by banks to businesses and consumers remained flat, with $12.07 trillion in loans outstanding heading into the end of the month, a slight increase from the previous week. While loans for commercial and residential real estate, as well as commercial and industrial loans, a benchmark for business credit, all fell slightly, the declines were offset by a recovery in consumer loans, led by credit card balances.
