Bank failures highlight declining deposits
Depositors have accelerated withdrawals amid recent bank failures and sharply rising interest rates, raising concerns about the industry’s health and ability to withstand a crisis, according to an Associated Press report.
Bank deposits fell by nearly $720 billion between the second and fourth quarters of 2022, leaving banks’ cash assets at their lowest levels in more than two years earlier this month. Banks have been slow to pass along better interest rates on traditional accounts to consumers, prompting a shift to money market funds, government bonds, or other more lucrative investments.
A new $300 billion special lending program the government made available following the failures of Silicon Valley Bank and Signature Bank has since helped slow the outflow.
Many smaller banks seemingly dipped into the package to boost their assets as a precaution.
“The size of the support suggests banks have a big hole in their finances,” said Brad McMillan, chief investment officer for Commonwealth Financial Network, in a note. “They now must fill that hole, which will mean fewer and more expensive loans across the economy.”