Amid ongoing stress in the U.S. banking industry, regulatory data reveals a historic shift in bank balance sheets, Moody’s Investors Service reports.
The rating agency said the latest data from the U.S. Federal Reserve point to funding issues at certain banks in the wake of the failures of Silicon Valley Bank and Signature Bank.
“Specifically, the data show a significant shift in deposits from small banks to large banks as well as the first outright decline in small banks’ deposits since 1986,” Moody’s reported.
According to the Fed data, large banks gained $120 billion in deposits, small banks lost $109 billion in deposits, and deposits at foreign banks dropped by $65 billion in mid-March. (All figures in U.S. dollars.)
“Deposits appear not only to have moved to larger banks from smaller banks, but also to have left the U.S. banking system for money-market mutual funds,” the report said.
Moody’s noted that U.S. banking system deposits declined by $53 billion in the second week of March, while money-market fund balances grew by $121 billion, according to data from the Investment Company Institute.
Given the drop in deposits, banks of all sizes have sharply increased non-deposit borrowing, Moody’s added.
“Banks’ motivation for this action likely varied and included the desire to build cash liquidity buffers, replace deposit outflows, and continue to fund new loans,” it said.
Small banks increased their borrowing by $241 billion for the week ended March 15, with total borrowing rising by 206% year over year, Moody’s said, calling it “by far the largest growth in non-deposit borrowing on record.”
At the same time, large banks increased their borrowing by $230 billion from the previous week, up by 125% year over year, “which also was unprecedented,” it said. “Banks also notably increased their cash balances in response to deposit funding strains and increased funding uncertainty.”