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Top 25 US Banks Face Declining Deposits

May 1, 2023

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Top 25 US Banks Face Declining Deposits: What Does It Mean for the Financial Landscape?

In the second week of April, the total deposits at US commercial banks experienced a small decline, decreasing from $17.43 trillion to $17.38 trillion, according to Federal Reserve data.

A man signs paperwork with a pen Declining Deposits
Deposits, loans, and leases all took a hit. Photo by Scott Graham on Unsplash

Interestingly, this decline was mostly seen at the top 25 banks, while smaller banks maintained steady deposits. This could indicate that the smaller, more local financial institutions are stabilizing after the collapse of two large regional banks last month.

Deposit, loans, and leases all dip

Loans and leases also experienced a minor dip, dropping from $12.06 trillion to $12.05 trillion. Although this change may not seem significant, it’s worth noting that a decrease in deposits can lead to reduced lending capacity for banks. We already know that there are a lot of downhill consequences when banks tighten their lending criteria.

As the Federal Reserve continues to monitor lending and credit activity, it must weigh the implications of recent interest rate hikes—the most aggressive in 40 years.

The closure of Silicon Valley Bank and Signature Bank last month raised concerns about potential credit tightening, which could slow down economic growth and inflation.

A tortoise walking by a wall Declining Deposits
Credit tightening could slow economic growth and inflation. Photo by Ralph (Ravi) Kayden on Unsplash

Increase in large time deposits

On a brighter note, higher interest rates have led to an increase in large time deposits, reaching $1.87 trillion—the highest since November 2009.

While they account for just 10.8% of total deposits, this is the largest share since August 2020, up more than 3 percentage points from the record low in January 2022.

What about alts?

So, how does this news impact investors interested in alternative assets? The recent fluctuations in declining deposits and loans could signal potential opportunities and risks in the alternative asset market.

As always, there are pros and cons, and tighter credit conditions could have negative impacts. The Federal Reserve has been pursuing an aggressive interest rate hike strategy in response to inflation concerns. As a result, the cost of borrowing may increase even further, affecting consumer spending, business investment, and overall economic growth.

At the same time, a decrease in lending capacity might prompt investors to explore alternative financing options, creating new opportunities within the sector. This is particularly relevant if you’re interested in investing in merchant cash advances because demand for this type of financing is already surging as banks continue to tighten their lending criteria.

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