(24 March 2023 – Global) Deposits in the United States (US) banking sector have contracted by almost US$600 billion since the US Federal Reserve commenced hawkish interest rate settings, representing the largest banking sector deposit outflow on record.
Capital markets have remained extremely tight since the collapse of Silicon Valley Bank (SVB). The longer the current stresses persist, the more harmful it will be for the economy Apollo reports.
In the week SVB failed, almost half of the deposit outflow from regional banks with assets less than US$250 billion was routed to majors such as JPMorgan, Citi and BofA despite their insistence not to poach clients from stressed banks according to Reuters. The other half likely found a home with higher-yielding investments including money market funds.
“The near-term risks to banks combined with uncertainty about deposit outflows, bank funding costs, asset price turbulence, and regulatory issues, all argue for tighter lending conditions and slower bank credit growth over the coming quarters. The economy continues to move from no landing to a hard landing, driven by the lagged effects of Fed hikes, magnified by the adverse effects of the ongoing banking crisis” commented Apollo Chief Economist, Torsten Sløk.