US Bank Deposits Fall $76.2 Billion, Led by Large Institutions

(Bloomberg) — US bank deposits fell last week, indicating the financial system remains fragile after a string of bank failures.

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Deposits decreased by $76.2 billion in the week ended April 12, according to seasonally adjusted data from the Federal Reserve out Friday. The drop was mostly at large and foreign institutions, but they also fell at small banks.

Meantime, commercial bank lending rose $13.8 billion last week on a seasonally adjusted basis. On an unadjusted basis, loans and leases fell $9.3 billion.

The data offer a mixed picture. Deposits resumed their decline after jumping in the previous week. They had dropped sharply last month in the immediate aftermath of the failures of Silicon Valley Bank and others, and are now at the lowest since July 2021.

But lending increased for a second week in a row, led by residential and consumer loans, indicating that credit conditions are stabilizing.

The Fed’s report, known as H.8, provides an estimated weekly aggregate balance sheet for all commercial banks in the US. Economists are closely monitoring it to gauge credit conditions after several lenders collapsed last month.

What Bloomberg Economics Says…

“Last month’s run on deposits at smaller banks looks increasingly contained, but the deposit drain at large banks remains on its yearlong trajectory. The Federal Reserve’s latest banking-system data show the current banking environment is mostly a consequence of cumulative monetary tightening, not recent bank failures.”

— Stuart Paul, economist

To read the full note, click here

Lending is key to business growth and spending, and tighter loan standards are seen as an emerging headwind for the economy in the months ahead. However, it may help bring inflation down faster than previously expected, according to the latest Bloomberg survey of economists.

The data follow earnings reports this week from several regional banks, which said they expect to earn less from their loan businesses this year. KeyCorp and Fifth Third Bancorp were among those that cut their outlooks for net interest income, while the outlook at Zions Bancorp was lower than expected.

Even so, firms including Fifth Third and Truist Financial Corp. showed that the quarter’s most closely watched gauge — deposit levels — largely held steady at a time when customer withdrawals contributed to the collapse of three of their competitors.

Fed officials have commented that tighter credit conditions will help do their work, which could lessen the urgency or possibly necessity for further interest-rate hikes. Still, policymakers are expected to hike rates by a quarter point at their meeting next month as inflation remains far too high.

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

Across all banks, total assets fell by around $86 billion, led by large banks.

It’s important to note that the H.8 report focuses on the commercial bank universe. When assets are divested to non-bank institutions — like in the case of the assets retained in receivership following the failure of Signature Bank — it can distort the picture.

The report is primarily based on data reported weekly by a sample of about 875 domestically chartered banks and foreign-related institutions.

For a list of commercial banks ranked by assets, click here.

–With assistance from Max Reyes.

(Adds Bloomberg Economics comment)