Disturbing Commercial Bank Trends

April 10, 2023
By Steven Vannelli, CFA in Economy, News

Lost in the Good Friday holiday and the jobs report was the weekly report on bank lending, deposits and securities holdings. Keeping in mind this data is always a week old, it shows the retreat from banks continues. Small banks have now experienced about $250 billion in deposit flight while big banks have experienced about $400 billion in the last six months.

Demand deposits, otherwise known as “other deposits,” have tumbled by about 4.5% in the last year.

The deposit drop is now leading to banks reducing loan books. US commercial banks have started shedding commercial and industrial loans aggressively.

While overall, bank loans still represent around 52% of bank credit, securities have been in liquidation mode. Securities as a percent of bank credit have dropped by about 3% over the last year.

In particular, bank holdings of government securities have fallen by about $600 billion over the last 18 months.

Now that the cat is out of the bag that banks aren’t paying enough for funding, they are seeing deposits leave for higher yielding money market funds. Money market funds have taken in about $400 billion just this year.

With the Fed paying 4.9% on excess reserves and 3-month T-bills yielding 4.95%, the yield advantage over bank deposit accounts is massive.




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