The quarterly reports of big banks were successful in their first match, and bank deposits and loans have both rebounded. There is growing evidence that the situation in the US banking industry may be far more resilient than imagined.

Does this mean that the Federal Reserve can put aside the concerns of the banking industry and raise interest rates to the end until inflation is completely defeated?

US banking loans rose for the first time in three weeks, and the increase in large non-term deposits hit the biggest record since December last year

According to commercial bank balance sheet H.8 released by the Federal Reserve on Friday, after adjusting for seasonal factors, commercial bank loans and leasing loans increased by 10.2 billion US dollars in the week ending April 5.This is the first increase in three weeks. Unadjusted loans and leasing loans declined by $5.6 billion.

Loans from both large and small banks have increased.

Among them, loans and leasing loans from large banks increased by a total of 13.2 billion US dollars.

Small bank loans and leasing loans increased by a total of $3.12 billion.

Looking at the loan sector, commercial and industrial loans have rebounded for the first time in three weeks, commercial real estate loans have improved slightly, and residential real estate loans have declined.

More importantly,Commercial bank deposits increased by nearly 61 billion US dollars, and increased by 75.2 billion US dollars before seasonal adjustments.

This result was quite a surprise.

You need to know that bank deposits have been flowing out since peaking in April 2022, and the outflow rate in March accelerated.

Specifically, deposits of large and small banks and foreign banks have all increased. What is even more surprising is that the deposits of small banks increased the most during the year, although they are still far below the level before the recent crisis broke out.

It is also worth mentioning that if large term deposits are excluded, the deposits of commercial banks of the United States will still grow significantly.

On the basis of seasonal adjustments, commercial bank deposits (excluding large term deposits) increased by 37 billion US dollars in the week ending April 5.Not only did it end the 10-week continuous outflow trend, but it also recorded the largest deposit inflow since December last year.

Prior to seasonal adjustments,Commercial bank deposits (excluding large term deposits) increased by $54 billion, representing two consecutive weeks of inflows.

Notably, the H.8 report focuses on the commercial banking sector, so it may distort the overall situation of the banking industry.

Has the Federal Reserve's temporary tool worked?

Looking back at the first two weeks of the banking crisis in March, the US credit situation experienced the worst tightening in history.

Data shows that in the two weeks after the Bank of Silicon Valley went out of business (ending March 22 and March 29), American commercial bank loans and leasing loans experienced the biggest two-week decline on record. Most loan losses came from the small bank sector, which reached 73.6 billion US dollars in the past two weeks.

For the US economy, the “credit crunch” is a big problem, because 70% of the US economic growth comes from credit-backed spending. This is even more true for small banks and their customers that have been hit hard by the recent banking crisis.

Analysts believe that unless bank deposits of about 400 billion US dollars flow back from the money market, the Federal Reserve's “temporary” emergency measures to boost market liquidity, such as BTFP, will soon become permanent measures.

However, according to the latest series of data,The Fed's temporary tools have worked, and they are exiting.

Will this “good” news revive regional banks?

In response, Bloomberg economist Stuart Paul said:

There is growing evidence that the turmoil in the banking system is still well controlled, and the easing of deposit outflows is a welcome development for financial stability. However, we expect banks to continue to raise loan standards, leading to a tightening of the financial environment.

Big banks have lots of good news

Just a few hours before these data were released, the three major banks that took the lead in the US stock earnings season all welcomed good news.

Benefiting from continued rising interest rates, J.P. Morgan Chase, Citibank, and Wells Fargo all exceeded expectations in the first quarter, and loan revenue increased sharply year over year. Among them, J.P. Morgan's deposits increased unexpectedly, Q1 revenue reached a record high, and net profit increased 52% year-on-year, exceeding expectations.

Of course, the pressure is still there.

For example, Citi's provision for loan losses increased nearly 75% year over year, and J.P. Morgan also substantially increased its reserves for loans that may deteriorate.

Is the May interest rate hike a foregone conclusion?

According to the minutes of the March meeting released by the Federal Reserve earlier this week, a series of bank failures caused Fed officials to lower their expectations for interest rate hikes.

The minutes also point out that the consequences of the US banking crisis may plunge the US economy into recession later this year. Although inflation has shown some signs of abating, it is still well above the Fed's 2% target.

However, retail sales data for March were weaker than expected, senior Federal Reserve officials urged continued austerity, consumers' recent inflation expectations unexpectedly rebounded strongly, and expectations for the Fed's interest rate hike are heating up again.

On the evening of Friday, April 15, just after the March retail data was released, exchange market quotes showed that the probability that the Federal Reserve would raise interest rates in May was as high as 90%.

Expectations for interest rate hikes on Saturday are still quite high. CME's Federal Reserve's observation tool shows that the probability that the Fed will raise interest rates by 25 basis points in May is 78%, and the probability that it will not raise interest rates is 22%.

Editor/phoebe