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October 27, 2023

$100,000,000,000 in Deposits Exit US Banking System in Three Weeks As Fed Survey Says Banks Face Financial Stability Risks

By Henry Kanapi

People and businesses are withdrawing billions of dollars in deposits from US banks as a new survey details concern on the state of the financial sector.

The latest numbers from the Federal Reserve Economic Data (FRED) system show that deposits in all US commercial banks suffered a $100 billion decline in three weeks – from $17.38 trillion on September 27th down to $17.28 trillion on October 18th.

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The deposit flight comes amid a new survey from the Federal Reserve that polls 25 participants, including market professionals, academics, investment funds and research and advisory firms.

The participants say that while the sector may have withstood financial tremors early this year, banks are still at risk of another crisis for two key reasons.

“Although survey respondents noted the banking sector has stabilized since the period of acute stress earlier this year, many highlighted risks of renewed deposit outflows given that large portions of deposits remain uninsured.

Many respondents continued to link risks of re-emerging banking-sector stress to potential losses on CRE (commercial real estate) exposures, particularly among smaller and regional banks.”

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Participants also view the commercial real sector as a “potential trigger for systemic stress” amid higher interest rates and declining demand for office space due to the shift to a hybrid work environment.

“Survey respondents viewed small and regional domestic banks as particularly vulnerable due to their higher concentration of CRE exposures, which could lead to tighter bank lending conditions.” 

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