Bank Deposits Edge Up After Record Withdrawals, Fed Data Show

The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., on June 14, 2022. (Sarah Silbiger/Reuters)

Deposits at U.S. commercial banks rose near the end of March for the first time in about a month after two of the largest U.S. banks failed, according to Federal Reserve data released on Friday.

The data showed deposits at all commercial banks rose to $17.35 trillion in the week ended March 29, on a non-seasonally adjusted basis, from a downwardly revised $17.31 trillion a week earlier.

It was the first increase since the start of March since a record flight of deposits triggered by the collapses of Silicon Valley Bank and Signature Bank toward the middle of last month.

Previously, $360 billion what been withdrawn from banks across the country in the past month alone, making it the fastest withdrawal of funds from commercial banks in U.S. history, according to data from the Fed.

Many are speculating that the recent bank scares are causing depositors to look for safer alternatives, finding solace in debt backed by the U.S. Treasury—an institution that has never defaulted.

The second- and third-largest bank failures in U.S. history since the financial crisis of 2008–09 forced federal regulators to guarantee all deposits at both institutions and prompted the Fed to take emergency actions to restore confidence in the banking system.

“You’ve seen that we have the tools to protect depositors when there’s a threat of serious harm to the economy or to the financial system, and we’re prepared to use those tools,” said Fed chair Jerome Powell during a news conference, CNBC reported. “And I think depositors should assume that their deposits are safe.”

Deposits rose at the largest 25 banks by assets and also at small and mid-sized banks. Small banks had been particularly hard hit by deposit outflows after the back-to-back bank failures, with some depositors shifting cash to larger institutions on concern that any funds in excess of the Federal Deposit Insurance Corporation’s limit of $250,000 per depositor  might be at risk.

After more than a year of sharp interest-rate increases by the Fed designed to slow the economy in order to cool inflation, last month’s banking turmoil has exacerbated worries that the central bank’s aggressive tightening may trigger a recession.

Overall credit from U.S. banks decline by a record of more than $120 billion in the latest week, on a non-seasonally adjusted basis, which was largely the result of banks divesting $87 billion in securities to non-banks, such as hedge funds. The Fed said banks had offloaded that amount of assets in each of the two latest weeks, most of it coming in the form of Treasurys and mortgage-backed securities.

Reuters and Liam Cosgrove contributed to this report.