Daily Management Review

U.S. banks lose record $370B in deposits


The Wall Street Journal reports, citing data from the Federal Deposit Insurance Corporation, that total deposits from people and businesses in U.S. banks fell by a record $370 billion in the second quarter.

Ivan Radic
Ivan Radic
This is the first decline since 2018. At the end of the second quarter, banks held a total of $19.56 trillion in deposits.

The WSJ claims that despite its size, this decrease in deposits is not a major issue for banks because they have only grown deposits by a record $5 trillion in the two years since the pandemic began. The U.S. Federal Reserve's frequent increases in the base discount refinancing rate are to blame for the fall. As a result of the higher interest rates on government bonds compared to deposits, there is an increase in demand for them.

Back in the spring many analysts doubted that a rate increase would cause a reduction in the volume of deposits. However, in the end the rate increase was more significant than expected. The Fed has already raised interest rates four times since the beginning of the year, and twice - in June and July - by an uncharacteristically large 0.75%. Many investment bankers and analysts expect a new 0.75% rate hike at the next Fed meeting in late September.

source: wsj.com