Small Bank Deposits Plunged $275 Billion In March, There's Just One Thing...

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by Tyler Durden
Friday, Apr 07, 2023 - 08:45 PM

Update (1700ET): Forgive our furrowed brow and generally government-data-questioning nature, BUT... One rather notable thing though which throws all of this 'transparency' into doubt...

According to the prior week's data, Small Banks saw a tiny $1.1 billion outflow (NSA), which prompted much rejoicing early on Monday when markets opened.

That tiny outflow was revised to a massive $47.5 billion outflow according to this week's data!

So just how much will this last week's data be revised next week?

*  *  *

US commercial bank deposits (ex-large time deposits) fell for the 10th straight week (to the week-ending 3/29), down $55 billion to their aggregate lowest since April 2021...

Source: Bloomberg

Rather oddly, on a non-seasonally-adjusted basis, total US commercial bank deposits (ex-large time deposits) ROSE $54 billion last week...

Source: Bloomberg

On the bright side, the pace of outflows has slowed  to $55.7 billion (from around $180 billion the previous two weeks), but the outflows look set to continue as Money Market fund inflows kept rising this week (a week ahead of the deposit data)...

Source: Bloomberg

Both large and small banks saw outflows once again, with large banks seeing $48 billion in outflows (to the lowest since March 2021) and small banks seeing a modest $7.2 billion in outflows (to the lowest since June 2021)...

Source: Bloomberg

On a seasonally-adjusted basis, Small banks saw around $275 billion in outflows in March (which included the week running up to SVB's collapse) while large banks have seen $195 billion in outflows during that same period.

Last week saw outflows (SA) from large, small, and foreign banks

  • Large banks: -$39.9BN for week ended March 29, vs -$89.8BN last week

  • Small banks: -$44.8BN for week ended March 29, vs +$5.8BN last week

  • Foreign banks: -$26.4BN for week ended March 29, vs -$41.7BN last week

On a non-seasonally-adjusted basis, Small and Large banks saw inflows while foreign banks saw the 3rd straight week of outlows...

  • Large banks: $48.7BN for week ended March 29, vs -$92.2BN last week

  • Small banks: +$25.7BN for week ended March 29, vs $47.5BN last week

  • Foreign banks: -$32.1BN for week ended March 29, vs -$35.4BN last week

So with outflows continuing (and the spread between banks and TSY/MM fund yields), will banks start to compete for deposits? (Well not the biggest ones, for sure)...

“There are two key questions raised by the recent deposit turmoil,” Barclays Plc strategist Joseph Abate wrote in a note last week.

“How many deposits do banks ultimately lose to higher yielding money market funds? And how costly is it to replace this funding?”

Until now, when banks have lost deposits they haven’t had to compete aggressively so rates have lagged the Fed’s rate increases, and balances at government-only money fund balances had been flat since the hiking cycle began.

“But now that depositors have noticed, this dynamic is about to change,” Abate said.

And if the small ones start to 'compete' their profitability will collapse even further.

Which probably explains why regional banks just can't bounce...

Still think this bank-run is over?

It's easy to tell from here - as we detailed previously (and as far back as Nov) - as long as we are above the reserve constraint level for small banks, there is stability courtesy of the Fed's massive reserve injection.

It appears Small banks are moving back towards the critical level, and the closer we get to that level, the greater the risk of bank failures and Fed panic.