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US banks lost $472B in deposits in the Q1 2023
- dgrin91 3y agoInteresting. Where did these $472B go? My understanding is that this didn't go into another bank, that $472B is a net across all banks. Did people start investing more? Did this money go into the economy?
- snapcaster 3y agoI think money market accounts and similar are the likely recipients
- bombcar 3y agoThis is it, mainly. You'll be able to see it here https://fred.stlouisfed.org/series/MMMFFAQ027S https://fred.stlouisfed.org/series/MMMFFAQ027S eventually.
- deleted 3y ago[deleted]
- dragontamer 3y agoIt disappeared. Fed policy for the last year has been to disappear money, which should eventually fix our inflation problem. Cash is dwindling for the first time in a generation. The economy will act differently than most of us have seen in our lifetimes. ------- M2, a measurement of how much money is in our economy, has been shrinking for months. Then again, M2 expanded too much during the COVID-19 era policies (we overreacted to the problem. But I don't blame policy makers for taking bold action). So this is a somewhat natural backlash that the Fed needs to manage. We are, and have been, undoing QE and raising interest rates simultaneously. This causes lending to be more expensive and savings to be better. Alas, we all have debts to pay (lots and lots of individual debt, record high mortgage rates and car loan rates). We all have a bit less money as a people compared to last year. So in practice, we are seeing personal savings dwindle and credit card debt (and other debt) balloon due to these interest rates. --------- EDIT: Downvotes? Lemme explain further. Since the peak in M2 of April 2022 at $22 Trillion, we're down to $20.9 Trillion, or roughly a loss of $1.1 Trillion in M2 (a measurement of how much money is in existence). The easiest place for cash to disappear is from liquid-savings accounts. Its very indirect: Fed raises interest rates, indirectly raising mortgages and car loan costs, raising what people are paying each money, eventually lowering savings accounts. But the "buck stops" somewhere, and its probably going to be in a liquid savings account.
- bubbleRefuge 3y agoNo. Fed policy has been to increase the price of money or interest rates in hopes of reducing demand in the economy to combat inflation because it makes borrowing more expensive to borrowers.
- dragontamer 3y agoWhich does... What to M2? It causes M2 to drop, and M2 includes savings account balances and MMFs (so it cannot be explained with "Oh, people just moved money to MMFs", because Savings+MMFs is dropping in general)
- s1artibartfast 3y agoM2 does not include institutional money market funds. This excludes pension fund, mutual fund company, bank, insurance company, or any other large institution.
- dragontamer 3y agoYou're right in that I've overgeneralized my statement earlier. But I argue my point still stands. https://fred.stlouisfed.org/series/WRMFNS https://fred.stlouisfed.org/series/WRMFNS Retail component of money market funds remains part of M2. Meaning that if depositors switched their money to VMFXX (or other retail money market funds), then it'd still be part of M2.
- have_faith 3y agoMoney (deposits) are created at the point that loans are made. Money is destroyed when these loans are repaid. The money supply (specifically M2, that includes deposits) can shrink if less loans are created compared to loans being paid off. Raising interest rates has this explicit effect. There is a lag for this affect to be noticed in the system.
- s1artibartfast 3y agoMy understanding is the exact opposite. Total deposits is the money individuals placed in banks, (e.g. cash in a checking account). If a bank gives you a mortgage, it does create money due to the fractional reserve, but it doesnt change the underlying deposits (The deposits are the reserve) The titular loss is simply people moving cash savings to money markets.
- have_faith 3y agoThis is actually a very common misunderstanding. Fractional reserve banking, as commonly learned, doesn't apply to most countries. The amount of money in the system made up of currency deposited into a bank is less than 10% of overall money in the system (I think it was 7% in the UK last I checked). The rest is money (deposits) created from thin air at the moment that a loan is granted. The Bank of England website actually has some very good articles on these subjects. Loans literally create money. Paying off a loan destroys it, minus the interest paid to the lender, that stays in the system. Banks do have a minimum reserve amount that they have to hold with the central bank, in the US and the UK this reserve percentage is currently 0 (zero). I have a few downvotes it seems. I'd be very interested in where the gaps are in my knowledge as it's something I've been learning a lot about recently.
- s1artibartfast 3y ago>Money (deposits) are created at the point that loans are made >The rest is money (deposits) created from thin air at the moment that a loan is granted. You are conflaiting deposits and money in cirulation but they are not interchangable. Deposits refer specifically to cash held with a bank, not debt. As such, deposits do not change when loans are granted or repayed. >Money is destroyed when these loans are repaid. Similarly, Money is not destroyed when loans are repaid. Loans are repaid with real money, which remains in circulation.
- bubbleRefuge 3y agotreasury securities paying 5%. you should take advantage. its free money. risk free.
- otrofimo 3y agoTaxes?
- LatteLazy 3y agoIt's a nitpick but... "Lost" implies they don't know where they went. They do. They were just withdrawn.
- dfxm12 3y ago"Lost" implies they don't know where they went. No it doesn't.
- Ensorceled 3y agoYes, yes it does. The document says ... "Total Deposits Declined Substantially Quarter Over Quarter, but Insured Deposits Increased" Declined makes sense, "lost" doesn't.
- dfxm12 3y agoDeclined makes sense, "lost" doesn't. "US banks declined $472B in deposits in the Q1 2023" (fdic.gov) So they turned the money down? No, that doesn't sound right...
- aezart 3y ago"US Bank deposits down $427B in Q1 2023" would make the most sense. I also read "lost" as "lost track of", as in "we received these deposits but then don't know where they went".
- tekla 3y agoNitpick: a) No it doesn't. Here are mainstream news outlets that uses the word "Lost" in the context of bank deposits decreasing, and we all know what they mean, and no way implies that they don't know where the money went. https://www.nytimes.com/2023/04/24/business/economy/first-republic-earnings.html https://www.nytimes.com/2023/04/24/business/economy/first-re... https://fortune.com/2023/04/24/first-republic-bank-loses-billions-deposits-first-quarter-plans-layoffs/ https://fortune.com/2023/04/24/first-republic-bank-loses-bil... b) The report itself doesn't use the word "Lost" once, so its a useless nitpick.
- MichaelMoser123 3y agoThere could have been more bank failures, given these figures ? I mean that's quite of lot of failing credit...
- tekla 3y agoThe report literally tells you explicitly about how many banks opened and closed during the quarter and the relevant number for the assets they hold
- animex 3y agoPresumably to instruments/organizations that are not US-based.
- altcognito 3y agoThese scary headlines are meaningless without context. If you are going to try and panic folks, at least do it right. Such a lack of effort, show some respect.
- tekla 3y agoI dont really understand why the title of the HN post takes a single point out of a dozen different things that the report is about, and even that point doesn't have any actual context, which the report expands on. I'm guessing it's trying to subtly editorialize the report. Better title would just be the "Quarterly Banking Profile"
- deleted 3y ago[deleted]
- deleted 3y ago[deleted]
- cs702 3y agoExcept for a brief reprieve during SVB's failure, the Fed continues to let the treasury and agency bonds it previously purchased mature, without recycling the proceeds it receives to purchase replacement bonds (i.e., the Fed is destroying the money): https://fred.stlouisfed.org/graph/fredgraph.png?g=15IkH https://fred.stlouisfed.org/graph/fredgraph.png?g=15IkH Every day, the US Treasury must issue new bonds to replace those bonds it repays. Given that the Fed is not stepping in to buy more treasury bonds in the open market, the private sector -- individuals, 401(k) plans, pension plans, endowments, mutual funds, etc. -- must find additional liquidity somewhere to buy the new bonds. The US Treasury will issue those bonds at the market-clearing price. A similar logic applies to agency bonds. Every day. Of course bank deposits are dwindling!
- DirectorKrennic 3y ago> The Fed is not stepping in to buy more treasury bonds, so the private sector -- individuals, 401(k) plans, pension plans, endowments, mutual funds, etc. -- must find additional liquidity somewhere to step in to buy the new bonds The private sector doesn't "have" to do anything.
- Kye 3y agoAll but individuals and possibly possibly 401(k)s do, in fact, have to do something. They have targets to meet. They don't just sit on the money.
- cs702 3y agoIf the private sector doesn't step in to buy newly issued treasuries, you would have a failed US treasury auction!!!
- s1artibartfast 3y agoHowever, that isnt the motivation of the private sector. The private sector buys them because they want to returns.
- fuoqi 3y agoWhat did you expect to happen with contracting M2? It has shrunk approximately to the same ~$500B in Q1.
- paddw 3y agoFor reference, it looks like current bank deposits are at 19.21T. https://ycharts.com/indicators/us_banks_total_deposits https://ycharts.com/indicators/us_banks_total_deposits
- indy 3y ago'PDF' in the title would be useful
- LeifCarrotson 3y agoWhat's your browser setup where that distinction would be useful or necessary?
- photochemsyn 3y agoOverview with less click-baity headline: "U.S. banks saw record deposit declines [-2.5%] in Q1 as profits remained steady: FDIC" https://www.reuters.com/markets/us/us-bank-deposits-fell-record-pace-while-profits-flat-q1-fdic-2023-05-31/ https://www.reuters.com/markets/us/us-bank-deposits-fell-rec... > "The FDIC said the $472 billion in deposit outflows in the first quarter was the largest it had recorded since it began collecting such data in 1984. The decline was primarily from uninsured funds, as insured deposits actually rose $255.1 billion, or 2.5%, amid the failures of Silicon Valley Bank and Signature Bank." This apparently means there was a 5% drop in the total uninsured funds, meaning likely about one-third of those funds were broken up into cash sweeps (into multiple smaller deposits, each under the FDIC limit for insured deposits)? edit [uninsured funds exodus = 472 + 255 + ? offshored] ?
- Kye 3y agoA whole lot of people discovered their banks would manage spreading it around to keep it under $250k after the SVB collapse. I wonder if that's related.
- albatross13 3y agoImagine if we had just given that money to Ukraine instead, sheeeesh I can't believe the pro-russian banks wouldn't do that
- efields 3y agoThis is literally fine.
- arek_nawo 3y agoWhile this is a single headline picked out from multiple pages of detail information, the economy (both US and worldwide) has certainly seen better times. For the last few months, especially the smaller, regional banks in the US felt the effects of fear the recent collapses have caused. That said, with the general slow-down and the risky game the SVB and others were playing, this had to happen eventually.
- xnx 3y ago> The decline was primarily from uninsured funds, as insured deposits actually rose $255.1 billion, or 2.5% This seems like good news, and what we would want to happen.
- engineer_22 3y ago$472B is approx. 2.03% of a $23.3T economy
- TheCaptain4815 3y agoWould money moved to higher yielding bonds/money market accounts count towards this "loss"? If so, I personally have convinced tons of people to move their cash to vanguard VMFXX which currently has a 5.04% yield (after their fees too!).
- s1artibartfast 3y agoYes, deposits are cash accounts. If you own a stock or fund, that is not a deposit.
- dragontamer 3y ago1. Bank Deposits have not kept up with MMFs. I transferred about 85% of all my cash into a money-market fund to keep up with the Fed Benchmark rate (currently 5%). 2. Fed has been purposefully destroying money through its policy decisions. This is on purpose, because the Fed's only tool to combat inflation is to destroy money (either directly, or indirectly). 3. In regards to #2: Mortgage rates are higher, car loans are higher, etc. etc. People in practice have relatively lost a lot of money because of this and have to tap their savings. Note that this FDIC document has noted that somehow, we have less delinquencies right now. So it seems like Americans are remaining responsible and paying off their debts. --------- Frankly, I'm surprised that "only" ~$500B of deposits have fled classic banks. People really should be moving their money to MMFs to take advantage of these much higher interest rates and the current Fed repo rate.
- bubbleRefuge 3y agoFed does not destroy money. The Fed swaps one asset for another in order to execute interest rate policy.
- dragontamer 3y agoNot directly destroy money, no. But when their policies cause M2 to go up or down, its got an effect that largely can be described as "Destroying M2", or "Destroying Money" in more colloquial terms.
- BasedAnon 3y ago[flagged]