U.S. bank deposits drop again, lending activity slips, flagging credit concerns

Invesitng.com — Deposits at commercial U.S. banks dropped again in the week ended May. 5, and lending activity resumed its decline, stoking concerns about a pick-up in the pace of tightening credit conditions that threaten economic growth.

Deposits at large U.S. banks fell to $17.150 trillion from $17.167T a week earlier, on a seasonally adjusted basis, data released on Friday by the Federal Reserve showed.

Commercial bank lending decreased to a seasonally adjusted $15.70 billion during the week. On an unadjusted basis, loans and leases increased nearly $4.00B.

Residential lending decreased $2.6B, commercial real estate loans rose $2.9B, and consumer loans fell nearly $2.5B from the prior week. Commercial and industrial loans were down about $6T.

The report comes just days after the Fed’s April Senior showed that major banks continued to tighten corporate lending standards and loan demand declined in the first quarter of the year.

A faster pace of tightening in credit conditions, particularly at regional banks, will likely rein in lending and economic growth that many believe will help the Fed bring down inflation.

“Corporate America goes to small and mid-term banks for loans, those loans are going to get harder to get. If companies can’t get loans, or have a harder time getting loans, there’ll be less spending and the ripple effect goes on,” Robert Conzo, CEO of The Wealth Alliance told Investing.com’s Yasin Ebrahim in an interview on Friday. 

“I think this banking turmoil absolutely will do some of the Fed’s work,” Conzo added. “This story is very much unfolding because there’s a lot of banks out there.”

Regional banks (NYSE:) ended the week down 5%, led by 21% slump in PacWest Bancorp (NASDAQ:) as bearish bets on the bank continued after it announced a drop in deposits, and pledged more collateral to borrow more from the Fed’s discount window.

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