New Federal Reserve statistics just released indicate that the Reserve Balances of commercial banks at that Federal Reserve increased by more than $83 billion this week to come in just short of $1.4 trillion on Wednesday March 9.
Excess reserves in the banking system averaged just under $1.3 trillion for the two banking weeks ending March 9. This figure tends to trail the Reserve Balances number because it is a 14-day average.
The Reserve Balances at the Federal Reserve are up over $360 billion since December 29, 2010 and up about $400 billion since September 22 just after Ben Bernanke warned the world that QE2 was on the way.
Bank Reserves have increased by 41% since that September date.
Note that on August 22, 2008 the total assets held by the Federal Reserve totaled $925 billion so that the increase in Reserve Balance from September 22, 2010 to March 9, 2011 of almost $400 billion represented 43% of what total Fed assets were before the financial crisis in the fall of 2008.
The $1.4 trillion in Reserve Balances are one and a half times the amount of assets held by the Federal Reserve on August 22, 2008.
Showing posts with label reserve balances at the Fed. Show all posts
Showing posts with label reserve balances at the Fed. Show all posts
Thursday, March 10, 2011
Friday, March 4, 2011
Federal Reserve QE2 Watch: Part 4.0
The Federal Reserve continues to pump funds into the banking system. Reserve balances at Federal Reserve banks reached $1.3 trillion on March 2, 2011. This is up from $1.1 trillion on
February 2 and up from $1.0 trillion on December 29, 2010.
These balances serve as a relatively good proxy for the excess reserves in the banking system which averaged $1.2 trillion over the two-week period ending February 23, 2011.
As we have reported before, there are two drivers of this increase in bank reserves. The first, connected with the Fed’s program of quantitative easy, is the acquisition of United State Treasury securities.
Over the past four weeks the Federal Reserve has added almost $100 billion to its portfolio of Treasury securities. Only about $18 billion of these purchases were offset by maturing Federal Agency issues and mortgage-backed securities.
Since the end of last year, the Fed has added $220 billion to its Treasury security portfolio. In this case the Fed was replacing a $48 billion decline in the other securities that were maturing.
And, in the past 13-week period, Almost $320 billion were added to the Treasury portfolio, replacing about $80 billion in maturing Agency issues and mortgage-backed securities.
The second driver has been the action surrounding Treasury deposits with Federal Reserve banks. Since these deposits are a liability of the Fed, a reduction in these deposits increases reserves in the banking system. There are two important accounts here, the Treasury’s General Account and the Treasury’s Supplementary Financing Account.
The Supplementary Financing Account has been used for monetary purposes and in the current case, the Treasury has reduced the funds in this account by $100 billion. All of this reduction came in February.
The Treasury’s General Account is used in conjunction with Treasury Tax and Loan accounts at commercial banks and is the account that the Treasury writes checks on. Generally tax monies are collected in the Tax and Loan accounts and then are drawn into the Federal Reserve account as the Treasury wants to write checks. When the Treasury writes a check, it is deposited in commercial banks, so that bank reserves increase.
Over the past four weeks, the Treasury’s General Account has dropped by almost $70 billion. Thus, between this account and the Treasury’s Supplementary Financing Account the Fed has injected almost $170 billion reserves into the banking system in February.
I need to call attention to the fact that funds moving into and out of the General Account can vary substantially. For example, since the end of the year (which includes the February change) this account has only fallen by $39 billion. Over the last 13-week period, the account has actually increased by $4 billion. Tax collections build up toward the end of the year and then are spent during the first quarter of the year preparing for another buildup around April 15, tax collection time.
The bottom line, the Federal Reserve is seeing that plenty of reserves are being put into the banking system. But, the commercial banks seem to be holding onto the reserves rather than lending them out.
Still, the growth rates of both measures of the money stock seem to be accelerating. The year-over-year growth rate of the M1 measure of the money stock was growing by about 5.5% in the third quarter of 2010. The growth rate increased to 7.7% in the fourth quarter and is growing at a 10.2% rate in January 2011.
The M2 measure of the money stock has also accelerated, going from a year-over-year rate of increase of 2.5% in the third quarter to 3.3% in the fourth quarter to 4.3% in January.
On the surface these increases in money stock look encouraging in terms of possible future economic growth. However, we are still seeing the same behavior of individuals and businesses in the most recent period that we have observed over the past two years.
The growth rates of both measures of the money stock still seem to be coming from people that are getting out of short term “investment” vehicles and are placing these funds in demand deposits or other transaction accounts, or in currency.
The first piece of evidence of this relates to the reserves in the banking system. The total reserves in the banking system have remained roughly constant over the past year. Yet, the required reserves of the banking system have increased by 10% year-over-year. This situation could only happen if demand deposit-type of accounts, which require more reserves behind them, were increasing relative to time and savings accounts, which have smaller reserve requirements.
Looking at the individual account items we see that demand deposits at commercial banks rose at a 20% year-over-year rate of growth in January. The non-M1 part of the M2 measure of the money stock rose by only an anemic 3% rate. Thus, the substantial shift in funds from time and savings accounts to transaction accounts continues. There is no indication of a speeding up of money stock growth connected with the reserves that the Fed is injecting into the banking system.
An even more dramatic shift can be seen if we include institutional money funds in the equation and look at what has happened in the banking system over the past nine weeks. The non-M1 portion of M2 increased by $22 billion over this time period. However, funds kept in institutional money funds declined by roughly $40 billion. This means that accounts that Milton Freidman would have labeled “a temporary abode of purchasing power” actually declined by $18 billion since the start of the year.
Demand deposits and other checkable deposits rose by about $21 billion. One could note that currency in the hands of the public also rose by $16 billion.
The public continues to move money from relatively liquid short-term savings vehicles to assets that can be spent by check or cash. This is not the kind of behavior one gets in an economy that is confident and expanding. This behavior can roughly be called “defensive”.
So, another month has gone by. The Fed is aggressively executing its program of quantitative easing. Yet, it still seems to be “pushing on a string.” Why is it I retain the feeling that the Federal Reserve’s effort is just spaghetti tossing, seeing what might stick to the wall?
The longer this policy continues, the less confidence people seem to have in both Ben Bernanke and the Federal Reserve. I shutter to think what Bernanke and the Fed will do to us when the banking system actually does start lending again.
Note that some members of the Fed’s Open Market Committee are suggesting that QE2 end abruptly at the end of June when the current program is slated to expire. (See "Policy Makers Signal Abrupt End to Bond Purchases in June": http://www.bloomberg.com/news/2011-03-04/fed-policy-makers-signal-abrupt-end-to-bond-purchases-in-june.html.)
Does everyone in the Fed seem “tone deaf” to you? They just seem to act on pre-conceived ideas and have no sense or feel of the banking system and financial markets. Another confidence raiser.
February 2 and up from $1.0 trillion on December 29, 2010.
These balances serve as a relatively good proxy for the excess reserves in the banking system which averaged $1.2 trillion over the two-week period ending February 23, 2011.
As we have reported before, there are two drivers of this increase in bank reserves. The first, connected with the Fed’s program of quantitative easy, is the acquisition of United State Treasury securities.
Over the past four weeks the Federal Reserve has added almost $100 billion to its portfolio of Treasury securities. Only about $18 billion of these purchases were offset by maturing Federal Agency issues and mortgage-backed securities.
Since the end of last year, the Fed has added $220 billion to its Treasury security portfolio. In this case the Fed was replacing a $48 billion decline in the other securities that were maturing.
And, in the past 13-week period, Almost $320 billion were added to the Treasury portfolio, replacing about $80 billion in maturing Agency issues and mortgage-backed securities.
The second driver has been the action surrounding Treasury deposits with Federal Reserve banks. Since these deposits are a liability of the Fed, a reduction in these deposits increases reserves in the banking system. There are two important accounts here, the Treasury’s General Account and the Treasury’s Supplementary Financing Account.
The Supplementary Financing Account has been used for monetary purposes and in the current case, the Treasury has reduced the funds in this account by $100 billion. All of this reduction came in February.
The Treasury’s General Account is used in conjunction with Treasury Tax and Loan accounts at commercial banks and is the account that the Treasury writes checks on. Generally tax monies are collected in the Tax and Loan accounts and then are drawn into the Federal Reserve account as the Treasury wants to write checks. When the Treasury writes a check, it is deposited in commercial banks, so that bank reserves increase.
Over the past four weeks, the Treasury’s General Account has dropped by almost $70 billion. Thus, between this account and the Treasury’s Supplementary Financing Account the Fed has injected almost $170 billion reserves into the banking system in February.
I need to call attention to the fact that funds moving into and out of the General Account can vary substantially. For example, since the end of the year (which includes the February change) this account has only fallen by $39 billion. Over the last 13-week period, the account has actually increased by $4 billion. Tax collections build up toward the end of the year and then are spent during the first quarter of the year preparing for another buildup around April 15, tax collection time.
The bottom line, the Federal Reserve is seeing that plenty of reserves are being put into the banking system. But, the commercial banks seem to be holding onto the reserves rather than lending them out.
Still, the growth rates of both measures of the money stock seem to be accelerating. The year-over-year growth rate of the M1 measure of the money stock was growing by about 5.5% in the third quarter of 2010. The growth rate increased to 7.7% in the fourth quarter and is growing at a 10.2% rate in January 2011.
The M2 measure of the money stock has also accelerated, going from a year-over-year rate of increase of 2.5% in the third quarter to 3.3% in the fourth quarter to 4.3% in January.
On the surface these increases in money stock look encouraging in terms of possible future economic growth. However, we are still seeing the same behavior of individuals and businesses in the most recent period that we have observed over the past two years.
The growth rates of both measures of the money stock still seem to be coming from people that are getting out of short term “investment” vehicles and are placing these funds in demand deposits or other transaction accounts, or in currency.
The first piece of evidence of this relates to the reserves in the banking system. The total reserves in the banking system have remained roughly constant over the past year. Yet, the required reserves of the banking system have increased by 10% year-over-year. This situation could only happen if demand deposit-type of accounts, which require more reserves behind them, were increasing relative to time and savings accounts, which have smaller reserve requirements.
Looking at the individual account items we see that demand deposits at commercial banks rose at a 20% year-over-year rate of growth in January. The non-M1 part of the M2 measure of the money stock rose by only an anemic 3% rate. Thus, the substantial shift in funds from time and savings accounts to transaction accounts continues. There is no indication of a speeding up of money stock growth connected with the reserves that the Fed is injecting into the banking system.
An even more dramatic shift can be seen if we include institutional money funds in the equation and look at what has happened in the banking system over the past nine weeks. The non-M1 portion of M2 increased by $22 billion over this time period. However, funds kept in institutional money funds declined by roughly $40 billion. This means that accounts that Milton Freidman would have labeled “a temporary abode of purchasing power” actually declined by $18 billion since the start of the year.
Demand deposits and other checkable deposits rose by about $21 billion. One could note that currency in the hands of the public also rose by $16 billion.
The public continues to move money from relatively liquid short-term savings vehicles to assets that can be spent by check or cash. This is not the kind of behavior one gets in an economy that is confident and expanding. This behavior can roughly be called “defensive”.
So, another month has gone by. The Fed is aggressively executing its program of quantitative easing. Yet, it still seems to be “pushing on a string.” Why is it I retain the feeling that the Federal Reserve’s effort is just spaghetti tossing, seeing what might stick to the wall?
The longer this policy continues, the less confidence people seem to have in both Ben Bernanke and the Federal Reserve. I shutter to think what Bernanke and the Fed will do to us when the banking system actually does start lending again.
Note that some members of the Fed’s Open Market Committee are suggesting that QE2 end abruptly at the end of June when the current program is slated to expire. (See "Policy Makers Signal Abrupt End to Bond Purchases in June": http://www.bloomberg.com/news/2011-03-04/fed-policy-makers-signal-abrupt-end-to-bond-purchases-in-june.html.)
Does everyone in the Fed seem “tone deaf” to you? They just seem to act on pre-conceived ideas and have no sense or feel of the banking system and financial markets. Another confidence raiser.
Monday, February 14, 2011
Federal Reserve QE2 Watch: Part 3.1
I usually don’t write up Fed actions within the month unless something seems to be going on. Last week, bank reserve balances at the Federal Reserve went up by $108 billion. I thought that this increase was significant enough to warrant some notice.
There was really only one “factor” supplying reserve funds this past week. This was a net increase in U. S. Treasury Securities held outright by the Fed of almost $30 billion, which brought the Fed’s holdings of Treasury securities up to $1.167 trillion. The portfolios of Federal Agency securities and Mortgage-backed securities did not change a bit.
Furthermore, Thursday afternoon, February 10, the Federal Reserve announced that it would purchase about $97 billion in U. S. Treasury securities in the upcoming week. This total would include about $17 billion to replace the runoff in the Fed’s holdings of mortgage-backed securities, implying that there would be a “net” increase in securities holdings that would be a part of QE2.
The question we can’t answer is whether or not there will be other operating factors on the Fed’s balance sheet that the Fed needs to deal with.
This past week, the banking week ending February 9, 2011, there were substantial movements in two of the Federal Reserve accounts of the United States Treasury. The first movement was in the Treasury’s General Account and this amounted to a little more than a $55 billion reduction in the account.
This movement seems to be seasonal in nature, but was not offset this year, as it often has been in the past, by offsetting sales of government securities. That is why the decline contributed $55 billion more to bank reserves.
In 2009 there was a seasonal year-end buildup in the Treasury’s General Account which peaked in January 2010 and then dropped off to its spring low in April. This year the General Account built up to a peak again in early January before beginning to drop off.
Year-end tax receipts build up at the Fed which causes the peak to occur in early January. From these accounts the Treasury pays out more than it receives thereby causing bank reserves to increase. The difference is that this year the Fed did not sell Treasury securities to withdraw the reserves from the banking system. That would be counter to QE2 if they did..
The other actor in this play is the Treasury’s Supplemental Financing Account. (For a discussion of this see my post of April 19, 2010 (http://seekingalpha.com/article/199444-the-fed-s-new-exit-strategy). The Treasury’s Supplemental Financing Account reached a total of $200 billion in May 2010 and remained at this level until the banking week ending February 9, 2001. The account dropped by $25 billion which reduced the balance in the account to $175 billion. Reducing this account, like reducing the General Account, puts reserves into the banking system.
The Fed allowed an amount of $80 billion to flow into the banking system in the banking week ending February 9, 2011, all from government checks from the Treasury’s deposit balances at the Federal Reserve. There were roughly $3 billion offsets to this on the balance sheet so that only a net of $77 billion actually ended up in the banking system through this activity.
So, the actions were relatively “clean” this week and they resulted in $108 billion going into bank reserves at the Federal Reserve, roughly $30 from the Fed’s purchase of securities and $77 billion coming from government checks from the Treasury’s deposit balances at the Fed going into the private sector.
To my knowledge the $1,187 billion of reserve balances at the Federal Reserve at the end of business on February 9, 2011 is that largest total this account has ever reached!
The question this raises is this…are the reserves being pumped into the banking system getting into the private sector? Is all this Federal Reserve activity having any impact on the money stock numbers?
I am afraid I cannot give any different answer to this question than I have over the past year. The money stock measures are increasing but the reason for these increases still seems to be that people continue to move balances from other earning assets into assets that they can use to transact with. That is, people, in general, are reducing asset balances that were held for a rainy day or were part of their savings and have moved them into assets that they can use for daily purchases of goods and services.
I continue to think this is not a good sign. It is a sign that people are drawing down savings to have cash on hand to pay for daily needs. It is a sign that many people and businesses do not have sufficient income or cash flow to maintain their transaction balances and so have to bring money in from their savings in order to buy food, housing and so forth.
The good new is that bankruptcies and foreclosures are not increasing as fast as they once were.
The bad news is that they are still increasing at close to record rates.
How does this show up in the monetary statistics. Well, currency holdings by the public were increasing in January at a rate, almost 7%, that was roughly twice the rate of a year ago. These year-over-year increases are not near the heights that were reached in the darkest period of the Great Recession, over 11%, but they are high historically.
Demand deposits are also increasing at a fairly rapid pace. The year-over-year rate of growth of demand deposits was about 14% in the fourth quarter of 2010. In January, this figure reached 20%. The highest it reached during the Great Depression was something over 18%.
Note that the growth of the non-M1 part of the M2 measure of the money stock has increased over the past year, but at a very tepid rate. In the fourth quarter of 2010, the year-over-year rate of growth of this component of the M2 money stock measure was slightly over 2%. In January 2011, the year-over-year rate of increase rose to almost 3%, the highest level it had been in several years.
The reason is that the rate of decline in small time accounts and retail money funds slowed dramatically. In the first quarter of 2009, each of these accounts were falling at a 25% rate. In January 2011, the rate of decline in small time accounts was 21% and the rate of decline in retail money funds was around 13%. So, the non-transactions account part of the money stock measures have not declined…have even picked up…but the accounts associated with savings have experience a decline in their rate of decline.
So where are we? About where we have been for two years or so. The Fed keeps trying to push on the accelerator…and the private sector continues to scramble for survival.
What is amazing is that consumer spending and consumer sentiment seem to be picking up. Again, I can only argue that the American society has split. The wealthier, those that are still employed, still live in their own homes, and still have sufficient cash flows are spending. Those that are not fully employed, that have lost their homes or businesses, and those that must rely on their past accumulations of savings are in pretty poor shape. This is the only way I can explain the statistics I see on a daily basis.
There was really only one “factor” supplying reserve funds this past week. This was a net increase in U. S. Treasury Securities held outright by the Fed of almost $30 billion, which brought the Fed’s holdings of Treasury securities up to $1.167 trillion. The portfolios of Federal Agency securities and Mortgage-backed securities did not change a bit.
Furthermore, Thursday afternoon, February 10, the Federal Reserve announced that it would purchase about $97 billion in U. S. Treasury securities in the upcoming week. This total would include about $17 billion to replace the runoff in the Fed’s holdings of mortgage-backed securities, implying that there would be a “net” increase in securities holdings that would be a part of QE2.
The question we can’t answer is whether or not there will be other operating factors on the Fed’s balance sheet that the Fed needs to deal with.
This past week, the banking week ending February 9, 2011, there were substantial movements in two of the Federal Reserve accounts of the United States Treasury. The first movement was in the Treasury’s General Account and this amounted to a little more than a $55 billion reduction in the account.
This movement seems to be seasonal in nature, but was not offset this year, as it often has been in the past, by offsetting sales of government securities. That is why the decline contributed $55 billion more to bank reserves.
In 2009 there was a seasonal year-end buildup in the Treasury’s General Account which peaked in January 2010 and then dropped off to its spring low in April. This year the General Account built up to a peak again in early January before beginning to drop off.
Year-end tax receipts build up at the Fed which causes the peak to occur in early January. From these accounts the Treasury pays out more than it receives thereby causing bank reserves to increase. The difference is that this year the Fed did not sell Treasury securities to withdraw the reserves from the banking system. That would be counter to QE2 if they did..
The other actor in this play is the Treasury’s Supplemental Financing Account. (For a discussion of this see my post of April 19, 2010 (http://seekingalpha.com/article/199444-the-fed-s-new-exit-strategy). The Treasury’s Supplemental Financing Account reached a total of $200 billion in May 2010 and remained at this level until the banking week ending February 9, 2001. The account dropped by $25 billion which reduced the balance in the account to $175 billion. Reducing this account, like reducing the General Account, puts reserves into the banking system.
The Fed allowed an amount of $80 billion to flow into the banking system in the banking week ending February 9, 2011, all from government checks from the Treasury’s deposit balances at the Federal Reserve. There were roughly $3 billion offsets to this on the balance sheet so that only a net of $77 billion actually ended up in the banking system through this activity.
So, the actions were relatively “clean” this week and they resulted in $108 billion going into bank reserves at the Federal Reserve, roughly $30 from the Fed’s purchase of securities and $77 billion coming from government checks from the Treasury’s deposit balances at the Fed going into the private sector.
To my knowledge the $1,187 billion of reserve balances at the Federal Reserve at the end of business on February 9, 2011 is that largest total this account has ever reached!
The question this raises is this…are the reserves being pumped into the banking system getting into the private sector? Is all this Federal Reserve activity having any impact on the money stock numbers?
I am afraid I cannot give any different answer to this question than I have over the past year. The money stock measures are increasing but the reason for these increases still seems to be that people continue to move balances from other earning assets into assets that they can use to transact with. That is, people, in general, are reducing asset balances that were held for a rainy day or were part of their savings and have moved them into assets that they can use for daily purchases of goods and services.
I continue to think this is not a good sign. It is a sign that people are drawing down savings to have cash on hand to pay for daily needs. It is a sign that many people and businesses do not have sufficient income or cash flow to maintain their transaction balances and so have to bring money in from their savings in order to buy food, housing and so forth.
The good new is that bankruptcies and foreclosures are not increasing as fast as they once were.
The bad news is that they are still increasing at close to record rates.
How does this show up in the monetary statistics. Well, currency holdings by the public were increasing in January at a rate, almost 7%, that was roughly twice the rate of a year ago. These year-over-year increases are not near the heights that were reached in the darkest period of the Great Recession, over 11%, but they are high historically.
Demand deposits are also increasing at a fairly rapid pace. The year-over-year rate of growth of demand deposits was about 14% in the fourth quarter of 2010. In January, this figure reached 20%. The highest it reached during the Great Depression was something over 18%.
Note that the growth of the non-M1 part of the M2 measure of the money stock has increased over the past year, but at a very tepid rate. In the fourth quarter of 2010, the year-over-year rate of growth of this component of the M2 money stock measure was slightly over 2%. In January 2011, the year-over-year rate of increase rose to almost 3%, the highest level it had been in several years.
The reason is that the rate of decline in small time accounts and retail money funds slowed dramatically. In the first quarter of 2009, each of these accounts were falling at a 25% rate. In January 2011, the rate of decline in small time accounts was 21% and the rate of decline in retail money funds was around 13%. So, the non-transactions account part of the money stock measures have not declined…have even picked up…but the accounts associated with savings have experience a decline in their rate of decline.
So where are we? About where we have been for two years or so. The Fed keeps trying to push on the accelerator…and the private sector continues to scramble for survival.
What is amazing is that consumer spending and consumer sentiment seem to be picking up. Again, I can only argue that the American society has split. The wealthier, those that are still employed, still live in their own homes, and still have sufficient cash flows are spending. Those that are not fully employed, that have lost their homes or businesses, and those that must rely on their past accumulations of savings are in pretty poor shape. This is the only way I can explain the statistics I see on a daily basis.
Monday, November 9, 2009
Some Positive Movement in Small Bank Lending?
Could there be a glimmer of life in bank loans at Small Domestically Chartered Commercial Banks?
The latest figures released by the Federal Reserve on the Assets and Liabilities of Commercial Banks in the United States gives some indication that this is happening.
In the latest four weeks for which we have data, all Loans and Leases at commercial banks declined by $22 billion, but loans and leases at the smaller banks actually rose by $50 billion. And, this rise was across the board.
Note that over the last 13-week period, all loans and leases fell by $29 billion so that lending is down for the last quarter’s worth of data we have, but the figures reported above represent a movement in the right direction.
Furthermore, the increase in lending was across the board: commercial and industrial loans at these small banks rose by about $19 billion; real estate loans rose by $18 billion; and consumer loans increased by almost $17 billion. All these figures are down for the last 13-week period except for consumer loans that show an increase of about $14 billion for this longer period.
Are we getting a break in the ice barrier at the smaller banks? We’ll just have to wait and see.
Just an interesting side note on this: cash assets held by these same smaller banks actually declined by $17 billion during the last four weeks.
This occurred as the commercial banking system became even more awash with cash during this time period. Cash assets at Large Domestically Chartered banks rose by $88 billion and cash assets held by Foreign-Related Institutions rose by $192 billion. Total cash assets reported in the banking system reached a new high in the weeks of October 21 and October 28 of about $1.3 trillion while Reserve Balances with Federal Reserve Banks rose to $1.08 trillion on this last date and excess reserves averaged $1.06 trillion, a new record, for the two weeks ending November 4.
While the smaller commercial banks were increasing their loan portfolios during the last four weeks, large banks and foreign-related institutions were reducing theirs. For example, in the last four week period, large commercial banks reduced total loans by almost $52 billion. For the last 13-week period these banks have reduced all loans by $139 billion. And the decreases were all over the balance sheet: commercial and industrial loans were down by $27 billion; real estate loans were down by $40 billion; and consumer loans were down by $10 billion.
The only offsetting item on the balance sheets of the larger banks was an increase in securities held. This item rose $29 billion in the latest 4-week period; and was up by $68 billion over the last 13 weeks. This may be related to the fact that the largest reported area for earnings in the larger banks over the last calendar quarter or so came in the area of securities trading.
The securities portfolios of the smaller banks and the foreign-related institutions declined, both for the 4-week period and the 13-week period.
Overall, total assets in the banking system rose by $184 billion in the latest 4-week period, but that can be accounted for by the increase in cash assets. Total bank lending did not increase, and commercial and industrial loans and real estate loans continued to decline.
In this period, when everyone is looking for signs of a recovery, the fact that the lending at smaller commercial banks has shown some positive growth is encouraging. We will have to keep an eye on this area of the economy. Obviously, the lending at the smaller banks needs to pick up if the economy of “Main Street” is going to get started.
Furthermore, there has been great concern over possible solvency problems among the smaller banks. If these smaller banks are beginning to lend again and if they are drawing down their cash balances to do that lending, then that could indicate some increasing confidence within this sector that asset balances are beginning to stabilize. This would really be good news!
I don’t want to be premature on this, but, the increased lending of the smaller banks is a surprise and, possibly, a hopeful sign.
Yet, there are the larger banks. There is no indication that the decline in lending at the larger banks is going to stop. And, in one sense, why should it. Many of the larger banks are making lots of money off of security trading. The ones that are not in as good a shape continue to “down size” and contemplate which assets they want to sell off or which asset they can sell off. Apparently, continuing to stockpile cash assets and excess reserves is a good strategy for them. This, to me, is continuing evidence that the problem in these banks is one of solvency because the value of their assets cannot be determined.
The best news is still that things on the banking front are relatively quiet. Again, this is a sign that the banks are working through their problems. Yes, there is a bankruptcy here and a bank closing there. This news will not stop for another 12 to 18 months. Let’s just hope that things continue to stay quiet and these events proceed peacefully.
The latest figures released by the Federal Reserve on the Assets and Liabilities of Commercial Banks in the United States gives some indication that this is happening.
In the latest four weeks for which we have data, all Loans and Leases at commercial banks declined by $22 billion, but loans and leases at the smaller banks actually rose by $50 billion. And, this rise was across the board.
Note that over the last 13-week period, all loans and leases fell by $29 billion so that lending is down for the last quarter’s worth of data we have, but the figures reported above represent a movement in the right direction.
Furthermore, the increase in lending was across the board: commercial and industrial loans at these small banks rose by about $19 billion; real estate loans rose by $18 billion; and consumer loans increased by almost $17 billion. All these figures are down for the last 13-week period except for consumer loans that show an increase of about $14 billion for this longer period.
Are we getting a break in the ice barrier at the smaller banks? We’ll just have to wait and see.
Just an interesting side note on this: cash assets held by these same smaller banks actually declined by $17 billion during the last four weeks.
This occurred as the commercial banking system became even more awash with cash during this time period. Cash assets at Large Domestically Chartered banks rose by $88 billion and cash assets held by Foreign-Related Institutions rose by $192 billion. Total cash assets reported in the banking system reached a new high in the weeks of October 21 and October 28 of about $1.3 trillion while Reserve Balances with Federal Reserve Banks rose to $1.08 trillion on this last date and excess reserves averaged $1.06 trillion, a new record, for the two weeks ending November 4.
While the smaller commercial banks were increasing their loan portfolios during the last four weeks, large banks and foreign-related institutions were reducing theirs. For example, in the last four week period, large commercial banks reduced total loans by almost $52 billion. For the last 13-week period these banks have reduced all loans by $139 billion. And the decreases were all over the balance sheet: commercial and industrial loans were down by $27 billion; real estate loans were down by $40 billion; and consumer loans were down by $10 billion.
The only offsetting item on the balance sheets of the larger banks was an increase in securities held. This item rose $29 billion in the latest 4-week period; and was up by $68 billion over the last 13 weeks. This may be related to the fact that the largest reported area for earnings in the larger banks over the last calendar quarter or so came in the area of securities trading.
The securities portfolios of the smaller banks and the foreign-related institutions declined, both for the 4-week period and the 13-week period.
Overall, total assets in the banking system rose by $184 billion in the latest 4-week period, but that can be accounted for by the increase in cash assets. Total bank lending did not increase, and commercial and industrial loans and real estate loans continued to decline.
In this period, when everyone is looking for signs of a recovery, the fact that the lending at smaller commercial banks has shown some positive growth is encouraging. We will have to keep an eye on this area of the economy. Obviously, the lending at the smaller banks needs to pick up if the economy of “Main Street” is going to get started.
Furthermore, there has been great concern over possible solvency problems among the smaller banks. If these smaller banks are beginning to lend again and if they are drawing down their cash balances to do that lending, then that could indicate some increasing confidence within this sector that asset balances are beginning to stabilize. This would really be good news!
I don’t want to be premature on this, but, the increased lending of the smaller banks is a surprise and, possibly, a hopeful sign.
Yet, there are the larger banks. There is no indication that the decline in lending at the larger banks is going to stop. And, in one sense, why should it. Many of the larger banks are making lots of money off of security trading. The ones that are not in as good a shape continue to “down size” and contemplate which assets they want to sell off or which asset they can sell off. Apparently, continuing to stockpile cash assets and excess reserves is a good strategy for them. This, to me, is continuing evidence that the problem in these banks is one of solvency because the value of their assets cannot be determined.
The best news is still that things on the banking front are relatively quiet. Again, this is a sign that the banks are working through their problems. Yes, there is a bankruptcy here and a bank closing there. This news will not stop for another 12 to 18 months. Let’s just hope that things continue to stay quiet and these events proceed peacefully.
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