Recent data reveals a substantial exodus of deposits from U.S. banks, increasing apprehensions about the robustness of the nation’s financial institutions.
According to Federal Reserve Economic Data, there was a staggering $100 billion reduction in deposits within U.S. commercial banks in just three weeks.
Specifically, the deposits plummeted from $17.38 trillion on Sept. 27 to a concerning $17.28 trillion by Oct. 18.
The alarming trend coincided with a survey spearheaded by the Federal Reserve. Engaging 25 diverse participants, including market experts, academicians and investment strategists, the survey aimed to assess the current health and future trajectory of the banking sector.
The Federal Reserve proposed by lowering the fees by 30% of what merchants pay when consumers shop with debit cards.
According to the survey, despite the banking sector’s apparent stability after the financial hiccups earlier this year, most believed looming threats persist.
The survey participants said in the report, “Although survey respondents noted the banking sector has stabilized since the period of acute stress earlier this year, many highlighted risks of renewed deposit outflows given that large portions of deposits remain uninsured.”
The Fed previously stated there has been a cut in cost to debit-card issuers over the previous years.
Consumers in the current economy had been hit with high interest rates as some economists has predicted the U.S. will enter a recession.
“The panel suggests that inflation is continuing to ease, which is good news for consumers,” said Carlos Herrera, a chief economist at Coca-Cola.
The survey also highlighted another concern about the commercial real estate (CRE) sector. With fluctuating interest rates and dwindling demand for office spaces thanks to the burgeoning hybrid work culture, the CRE sector has emerged as a potential destabilizer.
The survey’s findings indicated, “Survey respondents viewed small and regional domestic banks as particularly vulnerable due to their higher concentration of CRE exposures, which could lead to tighter bank lending conditions.”
Such concerns have cast shadows over the banking stocks, such as Bank of America Corp (NYSE: BAC) and JPMorgan Chase & Co. (NYSE: JPM), as well as ETFs, like the Financial Select Sector SPDR Fund (NYSE: XLF) and the Vanguard Financials ETF (NYSE: VFH), with investors closely monitoring the situation. A prolonged deposit flight could weaken the banks’ liquidity positions, potentially affecting their lending capabilities and overall financial health.
Banks have been pushing consumers towards credit cards in order to ramp up travel rewards and other perks.
Produced in association with Benzinga
