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Bank Lending Plunge, Deposit Flight Raise ‘Sudden Stop’ Concerns
As you might've heard, commercial bank deposits in the US fell a tenth week late last month.
The bank stress has abated, and the Fed's H.8 release comes on a lag, which is suboptimal for the purposes of gauging the evolution of fast-moving panics.
That, in turn, makes me a bit less enthusiastic about the numbers given that I'm editorializing around a snapshot of the banking sector that's 10 days old. I guess that's better than editorializing around a snapshot of the labor market that's 30 days
Great piece. Thanks.
So many people seem to be ready to move on after just a few weeks of data. Patience, Grasshoppers!
This is probably true until there is a concern amongst banks about credit. This lending drop is more about deposit outflow, that is liquidity. The second order effect will be credit concern. The spread widening will be the third order effect, when borrowers may be able to borrow at higher real rates but may not want to do so
Bank earnings right around the corner…wonder what will be reflected.
The CRE problem at US banks likely gets doubled in size when you add in US pension funds (also lenders to CRE).
Remember the RTC? I was valuing loans at what was First Chicago back in the early 1990’s- there were “good loans” and “bad loans” depending on LTV (loan to value) ratios. Good loans were quickly recycled and the US government (RTC) absorbed the losses on the bad loans before recycling those properties.
There are a lot of versions of that scenario which could be put in place.
My belief is that the banks’ problems with commercial real estate loans are just the tip of the iceberg because the US pension funds and also private equity (run by people who have strong connections to “friends” in high places within the US government who won’t let them fail) have been making loans on commercial properties in an attempt to get higher returns.
Payouts on pensions are massively underfunded or in the case of private equity (which pensions are invested in)- they promised 20% plus returns except that now, with the looming LTV problems with CRE, the private equity won’t be able to deliver those returns.
No way the US government (Republicans or Democrats) will let the pensions fail.
Too big to fail.
Or if the political will to face this crisis is not there, it is pretty easy to inflate these problems away with money printing and lower rates.
Any links to data on pension funding status as of 2022? Thanks.
I was around and I agree with you…We don’t execute very well, and we need to up or game. A lot of people were present for this in the 90’s, and we need to do our part to improve the general knowledge of our fellows…