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Lending by banks fell slightly last week even as deposits dropped to a nearly two-year low, suggesting that U.S. financial institutions are in stable condition a few months after a bevy of bank failures.
Total bank lending fell by $3.3 billion to $12.1 trillion in the seven days ending May 10, the Federal Reserve reported Friday.
Most of the decline was due to fewer loans by large banks to big companies. Smaller banks increased lending.
Bank deposits, meanwhile, declined by $26.4 billion last week to $17.1 trillion. That’s the lowest level since July 2021.
All figures are taken from the Federal Reserve’s weekly H8 survey and are seasonally adjusted.
Key details: Commercial and industrial loans — a key economic driver — slipped by $3.5 billion last week to $2.76 trillion. These loans are still near a record high, however.
Big picture: Economists and investors are watching to see if banks reduce loans in response to declining deposits and a slowing economy.
Less lending tends to further slow the economy. Consumers buy fewer big-ticket items and businesses invest less.
Financial institutions in the U.S. lost some $550 billion in deposits in March after the failure of Silicon Valley Bank that month. The outflow of money has slowed, but deposits still fell for the third week in a row.
Lending remains quite robust, though, and there’s little evidence of a pending credit crunch even as banks tighten borrowing standards.
Market reaction: Stocks
DJIA,
SPX,
closed lower on Friday before the data were released. The yield on 10-year Treasury notes
TMUBMUSD10Y,
was little changed at 3.69%.
