U.S. banks are seeing deposits skyrocket and are pulling back on loans in the face of the coronavirus pandemic, newly released data from the Federal Reserve show.
Why it matters: It's the latest sign of trouble for the banking sector and the economy — a signal that consumers and businesses aren't starting new projects or focusing on growth, and are instead socking away cash.
By the numbers: The Fed's latest report on assets and liabilities of commercial banks shows that while banks have radically stepped up commercial and industrial loans, consumer loans have fallen precipitously.
- Commercial and industrial loans rose year over year by 116.8% in March, 170.4% in April and 37.6% in May, in large part because businesses have been drawing on lines of credit.
- Overall, consumer loans declined by 24.7% in May after a 41.7% decline in April.
- Credit cards and other revolving plans saw 73.7% and 43.7% year-over-year declines in April and May.
- Residential real estate loans and real estate loans overall also ticked down notably in May.
At the same time, deposits rose at a historic pace, adding to the $1.85 trillion of deposits reported by just the top 50 U.S. banks in the first quarter.
- In April alone, deposits rose by $865 billion, more than the previous record for an entire year. In May, deposits gained again, rising by $604 billion.
- After a brief decline during the week ended June 3, deposits again increased during the week ended June 10 by $85 billion.
Between the lines: It's more bad news for banks following a quarter in which profits fell 70%.
- The FDIC noted in a recent report that “deteriorating economic activity” caused lenders to write off 15% more delinquent debt than the previous year and set aside $38.8 billion to cover potential loan losses, up nearly 280% from the prior year.
- More than half of all banks reported a profit decline, and 7.3% of lenders were unprofitable in Q1. The amount of non-current loans rose 7.3% from the previous quarter, the biggest increase since 2010, according to the FDIC data.
The big picture: In addition to skittish consumers, banks have tightened their lending standards and are being "as conservative as possible, especially with people that aren't existing customers," Stephen Scouten, a bank analyst with Piper Sandler, said in an S&P Global Market Intelligence report last week.
- "Bankers don't really have a clue yet what losses are going to look like."
- "In terms of true new business, new customer production, they're going to be extremely cautious."