WSJ: Deposits Shrank $370B in Q2
The Wall Street Journal writes "U.S. Banks Lost a Record $370 Billion in Deposits Last Quarter," which tells us, "Deposits at U.S. banks fell by a record $370 billion in the second quarter, the first decline since 2018. Deposits fell to $19.563 trillion as of June 30, down from $19.932 trillion in March, according to the Federal Deposit Insurance Corp. The outflow in the quarter isn't a problem for banks, which are sitting on more deposits than they want. Deposits in the banking system usually stay relatively stable, but swelled by some $5 trillion in the past two years due to pandemic stimulus. Now, a series of Federal Reserve rate increases is taking some of that money out of the system, in part by decreasing demand for loans and increasing demand for government bonds." The piece adds, "Complicating forecasts is a $2.2 trillion Federal Reserve Bank of New York program where investors park cash, which has held steady despite rising rates. That money is largely coming from money-market funds. The reverse repo facility swelled during the pandemic, when overloaded banks started pushing their customers to put some of their deposits in money-market funds. Many analysts thought money would drain out of the reverse-repo facility first. But so far the opposite has happened, and deposits declined, which could reduce bank reserves at the Fed faster than expected. That could prompt the Fed to stop tightening early next year, some economists have said." See also the source, the FDIC's latest "Quarterly Banking Profile," which states, "Deposits declined $369.1 billion (1.9%) between first quarter 2022 and second quarter 2022. This was the first decline in deposits since the second quarter 2018. Both uninsured and insured deposits declined during the quarter, but the reduction in uninsured deposits drove the reduction. The quarterly reduction in deposits offset only a fraction of the unprecedented deposit growth reported during the pandemic. As of second quarter 2022, deposits represented 82.5% of the total assets, well above the pre-pandemic average of 76.7%. A decline in deposit accounts with balances greater than $250,000 (down $282.2 billion, or 2.6%) led the quarterly reduction. Despite the decline in aggregate deposits, just over half of all banks (51.2%) reported higher deposit balances compared with a quarter ago."
