Large Bank Deposits Rise As Money-Market Outflows Accelerate, Small Banks Still Stressed

Yesterday we discovered that Regional bank shares have been soaring towards pre-SVB levels despite yet another huge increase to a new record high in the usage of The Fed’s bank bailout facility (now at $131BN)…

Source: Bloomberg

We also highlighted the significant ‘arb’ trade available to banks able to use this facility.

Dear @federalreserve now that everyone knows about your BTFP arb where you literally give free money to banks, you will of course be closing the loophole and ending the facility https://t.co/W3Q5X6AWuI

— zerohedge (@zerohedge) December 22, 2023

However, what was most notable was that money-market funds saw another weekly outflow, potentially setting us up for more deposit inflows at the banks.

On a seasonally-adjusted basis. total bank deposits rose for the second straight week, up $11.4BN…

Source: Bloomberg

Even more impressively, non-seasonally-adjusted, total bank deposits soared by $76BN (the 3rd straight week of inflows), practically back to pre-SVB levels…

Source: Bloomberg

Excluding foreign banks, domestic bank deposits rose $73BN (NSA) and $14.4BN (SA)…

Source: Bloomberg

Excluding foreign bank deposits that means the US banking system is only down $82BN (NSA) from the start of the SVB crisis…

Source: Bloomberg

On a seasonally-adjusted basis, Small banks saw a small $0.4BN deposit outflow, while Large banks saw $14,8BN inflows…

Source: Bloomberg

And while Small bank deposits have been rising (NSA), Large bank deposits are soaring (NSA)…

Source: Bloomberg

However, on a seasonally-adjusted basis, neither Small nor Large bank deposit bases have really moved for almost 5 months…

Source: Bloomberg

Are money-market outflows going to bank deposits…

Source: Bloomberg

On the other side of the ledger, Large bank loan volumes shrank for the second week in a row (-$7.5BN) while Small bank loan volumes rose by $5.5BN (5th week in a row of increased small bank loan volumes)…

Source: Bloomberg

As we warned last week, there is potential trouble brewing still as the key warning sign continues to trend ominously lower (Small Banks’ reserve constraint – blue line), supported above the critical level by The Fed’s emergency funds (for now)…

Source: Bloomberg

As the red line shows, without The Fed’s help, the crisis is back (and large bank cash needs a home – green line – like picking up a small bank from the FDIC).

All of which makes us wonder, are we setting up for another banking crisis in March as:

1) BTFP runs out (it was only a 12 month temporary program), and

2) RRP drains to zero, at which point reserves get yanked which means huge deposits flight.

Is that why The Fed needed to bring rates down massively and fast, to reduce the bond losses on banks’ books?

On that cheery note, Happy Christmas!