In the week ending Aug. 2, the Federal Reserve reported a slight decline in commercial and industrial loans, which play a crucial role in driving the economy. Lending dipped by $500 million to $2.75 trillion during this period.
- Large banks witnessed an increase in lending by $1.8 billion, reaching $1.55 trillion. This marks the third consecutive weekly gain.
- On the other hand, small banks experienced a decline in lending by $1.3 billion, reaching $716.1 billion. This decline has persisted for four consecutive weeks.
These key details shed light on the contrasting lending trends observed between large and small banks. While lending by large banks is experiencing growth, lending by small banks continues to decline.
Total Bank Deposits Surge
During the same week, total bank deposits made a significant surge, rising by $32.4 billion to reach $17.6 trillion. This marks the fourth consecutive weekly gain in deposits.
It is worth noting that deposits had reached a peak of $18.2 trillion in mid-April 2022 when the Federal Reserve commenced raising interest rates.
Concerns for Policymakers
The decrease in commercial and industrial loans over the past four months is a cause for concern among policymakers. The most recent survey conducted by the Federal Reserve indicates that credit conditions remain very tight. This could potentially lead to a credit crunch and slow down the overall economy.
Furthermore, the demand for loans appears to be unusually low, and there has been a significant tightening of bank lending standards. According to Marco Casiraghi, an economist at Evercore ISI, this tightening is much more substantial than what was observed in previous instances of monetary tightening.
Despite the concerns surrounding commercial and industrial loans, the Dow Jones Industrial Average (DJIA) managed to finish the week with a modest gain. Additionally, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) increased by 8.5 basis points to 4.17% on Friday, indicating some market movement.
In conclusion, the decline in commercial and industrial loans, along with the associated implications for credit conditions and overall economic growth, remains a topic of significant interest and concern.
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