- Yahoo Finance – Depositors yank another $126 billion from US banks
Depositors drained another $126 billion from U.S. banks during the week ending March 22, according to new Federal Reserve data. This time the outflow came from the nation’s largest institutions. The biggest 25 banks lost $90 billion on a seasonally adjusted basis, according to the Fed. The smaller banks, which suffered massive withdrawals the previous week as regulators seized regional lenders Silicon Valley Bank and Signature Bank, were able to stabilize their outflows. They actually gained back $6 billion on a seasonally adjusted basis.
- Bloomberg – US Bank Deposits and Lending Both Dropped Last Week Amid Turmoil
Deposits fell nearly $126 billion, while bank loans retreated
Decrease in overall lending was largest since June 2021
Overall lending fell by $20.4 billion, the most since June 2021 and due to a decline in commercial and industrial loans. Residential and commercial real estate loans, as well as consumer lending, increased from the prior week.
- The New York Times – (March 16, 2023) Fed Blocked Mention of Regulatory Flaws in Silicon Valley Bank Rescue
As U.S. regulators prepared to announce an extraordinary government rescue of depositors at Silicon Valley Bank and Signature Bank on Sunday, officials from the Biden administration pushed to formally spotlight shortcomings in financial regulation that they blamed for the banks’ rapid descent to insolvency, according to several people involved in or close to the discussions. But Jerome H. Powell, the chair of the Federal Reserve, blocked efforts to include a phrase mentioning regulatory failures in the joint statement released early Sunday evening by the Fed, the Treasury Department and the Federal Deposit Insurance Corporation.
- The New York Times – (March 28, 2023) Federal Regulators Criticize Bank Executives and Pledge Reviews
A top regulator at the Federal Reserve on Tuesday blamed Silicon Valley Bank’s executives for its collapse and provided little explanation for why supervisors had failed to stop its demise, saying that the central bank was examining what went wrong. Michael S. Barr, the Fed’s vice chair for supervision, testified for more than two hours before the Senate Banking Committee
- Liberty Street Economics – (November 21, 2022) How Do Deposit Rates Respond to Monetary Policy?
In this post, we evaluate the pass through of the fed funds rate to deposit rates (that is, deposit betas) over the past several interest rate cycles and discuss factors that affect deposit rates…Since the 1990s, the response of deposits to monetary policy has been attenuated. This can be explained by the growth in deposits over the post-crisis period relative to investment opportunities. Understanding deposit pricing dynamics requires thinking about the quantities of various funding sources and the presence (or lack thereof) of competing products. Taken together, current deposit betas are lower and slower given banks significant supply of deposit funding. However, going forward the rapid increase in the fed funds rate suggests that the deposit gap will be higher than recent rate cycles, causing depositors to look elsewhere and deposit rates to rise in response.
Why Does This Matter?
- The Wall Street Journal – (March 30, 2023) Boston Fed’s Susan Collins Sees Modest Further Tightening by Central Bank
Federal Reserve Bank of Boston President Susan Collins said she expects the U.S. central bank to tighten policy a bit more to bring down inflation before holding interest rates steady through the end of the year. Recent stress in the financial sector has increased uncertainty about the direction of monetary policy, but the Fed must still address persistently high inflation, Ms. Collins added Thursday at a National Association for Business Economics conference in Washington.
Raise Deposit Rates