US bank deposit outflows decelerated in second week after SVB collapse

(C) Reuters. FILE PHOTO: The Silicon Valley Bank branch office is pictured in downtown San Francisco, California, U.S., March 13, 2023. REUTERS/Kori Suzuki/File Photo

(Reuters) – Deposits at all U.S. commercial banks fell in the week ended March 22 to their lowest since August, but at a slower rate than the week before, and stabilized at small lenders seen as more vulnerable to outflows after the failure of Silicon Valley Bank.

Data released on Friday by the Federal Reserve showed the $125.7 billion drop in deposits at all U.S. banks in the week ended March 22 was roughly $50 billion less than the record $174.5 billion outflows in the first week after the collapses of Silicon Valley Bank and Signature Bank (OTC:SBNY).

Still, that left overall deposits nearly $860 billion below their record high from last April, with more than a third of that drop – about $300 billion – occurring in the weeks since the collapse of SVB on March 10 and Signature two days later.

Revisions to the prior week’s data showed deposit outflows in that first week of bank sector turmoil was almost double the $98.4 billion initially estimated.

Deposits at small U.S. banks edged up to $5.386 trillion in the week ending March 22 from $5.381 trillion the prior week. Deposits at the largest 25 banks by assets, meanwhile, fell to $10.65 trillion from $10.74 trillion. Deposit outflows from foreign banks with U.S. operations accounted for the remainder of the week’s decline.

The prior week’s data was revised to reflect a change in the way the FDIC bridge banks created after the failures were incorporated into the small bank data, the Fed’s release said.

U.S. finance officials have repeatedly said that deposit flows have stabilized following the historic run on deposits at SVB and Signature, both of which had exceptionally high levels of deposits exceeding the FDIC’s $250,000 insurance limit.

U.S. officials were forced to take the extraordinary step of guaranteeing all deposits at both banks, a measure that has drawn both praise and criticism and has created confusion over whether such blanket protection would be offered in other bank failures.

Despite worries among policymakers that the two failures and the upheaval they caused might instigate a credit crunch with banks recoiling from making loans, bank lending has yet to show a substantial drop except for one key business loan category: commercial and industrial loans.

Those dropped by nearly $30 billion on the week, the biggest decline since June 2021. However, it is unclear if the drop was related to the collapse of the two banks.

Other categories of bank lending from commercial and residential real estate to consumer credit cards and car loans have shown little change since the banking turmoil erupted earlier this month.