Deposits at U.S. commercial banks dropped to their lowest level in almost two years in late April, according to data released by the Federal Reserve on Friday. However, overall credit provided by banks increased, buoyed by a record level of outstanding loans and leases.
Decline in Nonseasonally Adjusted Deposits
In the week ending April 26, nonseasonally adjusted deposits fell to approximately $17.1 trillion, a decrease of $120 billion from the previous week. This drop marks the lowest level since June 2021, with deposits having fallen by over $500 billion since the week before the collapse of Silicon Valley Bank (SVB) in March.
Stabilization of Deposits
Following the record deposit outflows in the aftermath of SVB’s failure and that of Signature Bank, deposits stabilized in early April. However, they picked up again in the latter half of April, a period that typically sees significant outflows from accounts as the annual tax filing season comes to a close.
Little Change in Seasonally Adjusted Deposits
Seasonally adjusted deposits, which account for this pattern, have seen little change since the end of March.
Deposits at Large and Small U.S. Banks
On a nonseasonally adjusted basis, deposits at large U.S. banks decreased to $10.54 trillion from $10.61 trillion the previous week. Deposits at small banks totaled $5.32 trillion, compared with $5.34 trillion.
Total Banking System Credit on the Rise
Despite recent banking system turmoil and aggressive interest rate increases by the Federal Reserve over the past year, total banking system credit has yet to show the expected contraction. Total banking system credit increased for the second consecutive week to $17.37 trillion, primarily due to an increase in loans and leases to a record high of $12.11 trillion, nonseasonally adjusted, from $12.07 trillion in the previous week.
Loan Growth Plateaus
Nevertheless, loan growth has flattened out in recent months. The annual growth rate has cooled from a double-digit pace late last year to around 9% as of April’s end, indicating that tighter conditions may be beginning to temper bank credit.
Conclusion
Despite the record level of outstanding loans and leases, U.S. commercial bank deposits have hit a two-year low. However, stabilization and a pickup in deposits in the latter half of April suggest the decline may be temporary. Meanwhile, total banking system credit continues to rise, although loan growth has slowed in recent months.
