Biden Says “Banks In Pretty Good Shape” As Small Banks See Biggest Deposit Outflow On Record

The Fed just released its weekly commercial bank data dump showing deposit inflows/outflows.

Two things to note:

1) This is for the week up to 3/15/23 (which includes the SVB collapse but nothing more)

2) ‘Large Banks’ includes the top 25 banks (which means SVB was among that group, hence, we get no indication of SVB rotation flows)

The overall data shows that domestic commercial banks saw over $98 billion in deposit outflows (seasonally-adjusted) that week to just over $17.5 trillion (8th straight week of aggregate outflows).

Source: Bloomberg

That is the largest (seasonally-adjusted) outflow since April 2022 (tax-related?) as we suspect much of that flowed into money-markets. Deposits have been on a steady decline over the past year or so, falling $582.4 billion since February 2022.

There was a notable rotation however with the large banks seeing deposit inflows of $117.9 billion on a non-seasonally-adjusted basis (the biggest weekly inflow since Dec 2021).

Small banks, on the hand, saw a massive $111 billion outflow (non-seasonally-adjusted)…

Source: Bloomberg (note different scales)

That is the largest weekly outflow ever (by multiples) and drops ‘small bank’ total deposits to the lowest since Sept 2021…

Source: Bloomberg

Bear in mind this data does not include the last 10 days, where we have US regional banks all tumbling further and Yellen offering no guaranteed deposits, FRC stock collapse amid bailouts (though that will skew the data due to that $30bn infusion), and the fear of Credit Suisse’s collapse.

Will banks start to compete for deposits? (Well not the biggest ones, for sure)…

“There are two key questions raised by the recent deposit turmoil,” Barclays Plc strategist Joseph Abate wrote in a note.

“How many deposits do banks ultimately lose to higher yielding money market funds? And how costly is it to replace this funding?”

Until now, when banks have lost deposits they haven’t had to compete aggressively so rates have lagged the Fed’s rate increases, and balances at government-only money fund balances had been flat since the hiking cycle began.

“But now that depositors have noticed, this dynamic is about to change,” Abate said.

And if the small ones start to ‘compete’ their profitability will collapse even further.

But as FSOC ‘reassured’ everyone today, “while some institutions have come under stress, the U.S. banking system remains sound and resilient.“

Thanks Janet.

President Biden chimed in on the state of the US financial system after the close, saying that “it’s going to take a little while for things to calm down,” adding that:

“The banks are in pretty good shape… I don’t see anything on the horizon about to explode”

Biden on the banking crisis: “I think we’ve done a pretty damn good job… The banks are in pretty good shape… I don’t see anything on the horizon that’s about to explode.” pic.twitter.com/htESm0AVDw

— Greg Price (@greg_price11) March 24, 2023

Reassured much?