{"id":1446588,"date":"2023-12-29T21:40:00","date_gmt":"2023-12-30T02:40:00","guid":{"rendered":"https:\/\/bugaluu.com\/news\/?p=1446588"},"modified":"2023-12-29T21:40:00","modified_gmt":"2023-12-30T02:40:00","slug":"us-banks-suffer-trillion-dollar-deposit-loss-in-2023-small-bank-capitalization-remains-problematic","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/us-banks-suffer-trillion-dollar-deposit-loss-in-2023-small-bank-capitalization-remains-problematic\/1446588\/","title":{"rendered":"US Banks Suffer Trillion-Dollar Deposit Loss In 2023, Small Bank Capitalization Remains Problematic"},"content":{"rendered":"

US Banks Suffer Trillion-Dollar Deposit Loss In 2023, Small Bank Capitalization Remains Problematic<\/span><\/p>\n

\n

On a non-seasonally-adjusted basis (why adjust when we are looking at annual changes), US domestic banks saw a stunning $1.17TN in deposit outflows <\/strong>(ex-large time deposits) in 2023 – the largest annual decline ever (and only the 3rd annual decline on record going back to 1985 – 1994, 2022, and 2023)…<\/p>\n

<\/a><\/p>\n

Source: Bloomberg<\/em><\/p>\n

Interestingly, money-market funds saw inflows of around $1.15TN almost perfectly mirroring the deposit exodus from banks<\/strong>…<\/p>\n

<\/a><\/p>\n

Source: Bloomberg<\/em><\/p>\n

But, with recession odds declining rapidly, are we about to see MM outflows accelerate<\/strong> (and thus more deposit inflows – as we have seen in very recent weeks)?<\/p>\n

<\/a><\/p>\n

Source: Goldman Sachs<\/em><\/p>\n

Breaking down the outflows, it’s clear that large banks have suffered more pain in 2023:<\/p>\n

Large Banks saw around $800BN in deposit outflows <\/strong>(ex-large time deposits) in 2023 – the largest ever annual decline<\/strong> deposits and second year in a row (and only third year ever of annual deposit declines).<\/p>\n

Small Banks saw around $300BN in deposit outflows<\/strong> (ex-large time deposits) in 2023 – the largest ever annual decline<\/strong> in deposits (actually the only annual decline in deposits ever in data going back to 1985.<\/p>\n

A quick glance at the chart shows that despite the March event (which saw small bank deposits tumble – as they should after the bank failures), small banks continue to attract a lot of deposits. <\/strong><\/p>\n

<\/a><\/p>\n

Source: Bloomberg<\/em><\/p>\n

For some reason, Americans hate giving their money to large banks, but it is small banks that are becoming dangerously under-capitalized as a result of having so many (relatively speaking) deposits.<\/strong><\/p>\n

The small bank deposit growth is happening as QT accelerates <\/strong>(green line above, down around $900BN in 2023) and even as the small banks themselves have little cash (as per the constraint chart below).<\/p>\n

Small banks reserve ratio (blue line) continues to trend in a troubling direction, but excluding the $136BN from The Fed’s BTFP (red line), Small Banks are in big trouble – the crisis back<\/strong> (and large bank cash needs a home – green line – like picking up a small bank from the FDIC30<\/p>\n

<\/a><\/p>\n

Source: Bloomberg<\/em><\/p>\n

On the other side of the ledger, both Large and Small banks saw loan volumes increase on the year<\/strong> (as deposits fell), up $57BN (only) and $198BN respectively…<\/p>\n

<\/a><\/p>\n

Source: Bloomberg<\/em><\/p>\n

However, as we warned previously<\/a>, the fallout from all this is that there is another pent up insolvency brewing<\/strong> – especially if The Fed proceeds with terminating its BTFP bailout fund (which is now spewing free money to banks via arbitraging The Fed’s own various facilities) and reverse repo usage (a source of liquidity) falls to zero.<\/p>\n

<\/a><\/p>\n

Don’t believe The Fed will kill the ‘temporary’ $136BN bailout facility, think again!<\/h2>\n

Dear @federalreserve<\/a> now that everyone knows about your BTFP arb where you literally give free money to banks, you will of course be closing the loophole and ending the facility https:\/\/t.co\/W3Q5X6AWuI<\/a><\/p>\n

\u2014 zerohedge (@zerohedge) December 22, 2023<\/a><\/p>\n

As a reminder, <\/a>the growing gap between the rate on the Federal Reserve\u2019s nascent funding facility and what the central bank pays institutions parking reserves suggests officials will let the program expire in March, <\/strong>according to Wrightson ICAP.<\/p>\n

The rate on the Fed\u2019s Bank Term Funding Program – which allows banks and credit unions to borrow funds for up to one year, pledging US Treasuries and agency debt as collateral valued at par – is the one-year overnight index swap rate plus 10 basis points.<\/em><\/p>\n

That figure is currently 4.83%, down from 5.59% in September.<\/em><\/p>\n

For institutions that have an account at the Fed, they can borrow from the BTFP at 4.83% and park that at the central bank to earn 5.40% – the interest on reserve balances.<\/em><\/strong><\/p>\n

<\/a><\/em><\/p>\n

Source: Bloomberg<\/em><\/p>\n

The 57bp spread is the widest level since the Fed introduced the facility to support a struggling banking system after the collapse of California\u2019s Silicon Valley Bank and Signature Bank in New York.<\/em><\/p>\n

\u201cIn justifying the generous terms of the original program, the Fed cited the \u2018unusual and exigent\u2019 market conditions facing the banking industry following last spring\u2019s deposit runs,\u201d Wrightson ICAP economist Lou Crandall wrote in a note to clients.<\/em><\/p>\n

\u201cIt would be difficult to defend a renewal in today\u2019s more normal environment.\u201d<\/strong><\/em><\/p>\n

Then WTF are banks going to do when The Fed shuts down this ‘temporary’ bailout program in March?<\/p>\n

For now, investors are living on a prayer…<\/p>\n

<\/a><\/p>\n

Happy New Year!<\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nFri, 12\/29\/2023 – 16:40<\/span><\/p>\n

\u200bhttps:\/\/www.zerohedge.com\/markets\/bank-depos<\/a>\u00a0<\/p>\n

\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

US Banks Suffer Trillion-Dollar Deposit Loss In 2023, Small Bank Capitalization Remains Problematic On a non-seasonally-adjusted basis (why adjust when we are looking at annual…<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1446588","post","type-post","status-publish","format-standard","hentry","category-news","wpcat-1-id"],"_links":{"self":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1446588","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/comments?post=1446588"}],"version-history":[{"count":0,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1446588\/revisions"}],"wp:attachment":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media?parent=1446588"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/categories?post=1446588"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/tags?post=1446588"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}