US bank lending and deposits rise amid signs of stable credit

Commercial bank lending jumps to three-week high at $10.4 billion, according to latest data

US bank deposits rose by $30 billion during the week ending May 17. Reuters
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US bank lending increased last week, suggesting some stabilisation in credit conditions despite tighter loan standards and high borrowing costs as interest rates continued to climb in the country.

Commercial bank lending rose $10.4 billion in the week ending May 17 to a three-week high, according to seasonally adjusted data from the Federal Reserve out on Friday. On an unadjusted basis, loans and leases increased $2.3 billion.

Bank deposits rose by $30 billion during the same period. The advance was broad across institutions of varying size. On an unadjusted basis, deposits increased $32.9 billion.

To gauge credit conditions, economists are closely monitoring the Fed’s so-called H.8 report, released weekly, which provides an estimated aggregate balance sheet for all commercial banks in the US.

The biggest 25 domestic banks account for almost three-fifths of lending, although in some key areas – including commercial real estate – smaller banks are the most important providers of credit.

The latest data comes amid a banking crisis in the US. Three big banks collapsed in the US in recent months raising doubts about the stability of the banking sectors in the world's largest economy.

These include Silicon Valley Bank, First Republic Bank, which was acquired by JP Morgan Chase and Signature Bank.

However, Federal Reserve chairman Jerome Powell said the banking crisis that has hit US markets has “broadly improved” since Silicon Valley Bank collapsed in early March.

US Federal Reserve raises interest rates for tenth consecutive time

Jerome Powell, chairman of the US Federal Reserve, during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, DC, US, on Wednesday, May 3, 2023.  The Federal Reserve raised interest rates by a quarter percentage point and hinted it may be the final move in the most aggressive tightening campaign since the 1980s as economic risks mount. Photographer: Al Drago / Bloomberg

Conditions have “broadly improved since early March,” he told reporters after the Fed raised its interest rates by 25 basis points earlier this month.

Mr Powell said it was typically not good policy for big banks to acquire midsized ones such as First Republic.

But he believed JPMorgan's acquisition of First Republic was an exception and “a good outcome for the banking system”.

As a result of the acquisition, all depositors of First Republic become depositors of JP Morgan.

“I don't have an agenda to further consolidate banks,” Mr Powell said. “I personally have long felt that having small, medium and large-sized banks is a great part of our banking system.”

The US Federal Reserve this month once again raised interest rates, marking its 10th consecutive increase as it aims to rein in inflation.

The Fed bumped up the policy rate for a third consecutive time this year by 25 basis points as it seeks to bring inflation down to its target range of 2 per cent.

With inputs from Bloomberg.

Updated: May 28, 2023, 3:43 AM