IPC International Community magazine an association member publication
Issue link: https://iconnect007.uberflip.com/i/1503860
IPC COMMUNITY 14 SUMMER 2023 banks. Bank deposits have fallen about 3.5%, or over $600 billion, since the start of the year. Small banks have seen deposits decline roughly 4.4%, or nearly $250 billion, since the beginning of the year. Depositors have been moving bank deposits from low-interest-bearing bank deposits to money market funds which offer higher yields. Money market hold- ings have risen over $160 billion since the start of the year and are up nearly $400 billion since the Federal Reserve began raising rates in early 2022. The effective Federal Funds rate has risen nearly 500 basis points since the Federal Reserve began raising rates in March 2022. Money market rates have risen sharply over this time while interest rates for savings accounts have remained muted. The spread between interest-bearing bank deposits and money market funds is likely to remain wide and, as a result, deposit outflows are unlikely to reverse. The outflow of deposits limits both the ability and willingness of banks to offer loans. Moreover, financial institutions are becoming more cautious given both the volatility in the banking system and the broader economic uncertainty. Banks are reporting tighter lend- ing policies and this trend is likely to continue in the months ahead as their risk tolerance continues to diminish. Since the start of the year, commercial and industrial (C&I) balances are down $40 bil- lion across all commercial banks and off over $28 bil- lion at small banks. While there is much focus on big banks, there are about 4,800 banks in the U.S. and small banks are espe- cially important to watch when it comes to lending because of the impact they have in specific lend- ing areas and geographic regions. Small- and mid- sized banks, defined as domestically chartered banks not among the 25 largest, represent about a Deposits, all commercial banks, seasonally adjusted, 12wk change, $B. Deposits, small domestically chartered commercial banks, seasonally adjusted, 12wk change, $B. IPC COMMUNITY 14 SUMMER 2023