The U.S. banking industry continues to struggle after the collapse of three major banks. Statistics show that U.S. bank lending fell by nearly $105 billion in the last two weeks of March, the largest decline on record. Moreover, Tesla executive and Twitter owner Elon Musk recently commented that trillions of dollars are being withdrawn from banks to money market funds, claiming that “this trend will accelerate.”
Statistics still show weakness in U.S. banks, Musk warns
There are still plenty of signs that the U.S. banking system is feeling the aftermath of several high-profile bank failures: in the first week of March, Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank (SBNY) ceased operations; SVB and SBNY were both placed under government control The Federal Reserve System, the Treasury Department, the The Federal Reserve, the Treasury Department, and the Federal Deposit Insurance Corporation (FDIC) bailed out the uninsured depositors of SBNY and SVB, making all depositors whole.
Since then, the banking contagion has spread not only in the U.S. but also internationally, with institutions such as SVB UK and Credit Suisse stalling; according to a recentreportby Bloomberg, the last two weeks of March saw the largest contraction in lending on record since the collapse
Federal Reserve data on the matter only goes back to 1973, and in the last two weeks of March 2023, nearly $105 billion was erased.
Alexandre Tanzi of Bloomberg explained that the loans consisted of industrial, commercial, and real estate loans. In addition, $64.7 billion in commercial bank deposits were withdrawn from financial institutions last week, marking the tenth consecutive week of deposit declines. Another sign of trouble was the sharp increase in bond issuance by the Federal Home Loan Bank (FHLB) in March. Blockworks journalist and macro researcher Jack Farleyshared a chartshowing that FHLB bond issuance jumped “just under a quarter trillion dollars” last month. Farley added:
This is more than six times the post-GFC March average, indicating that banks are scrambling for cash.
Additionally, popular Twitter accountWall Street Silver (WSS)shared a video of economistPeter St. Ongeexplained that a significant amount of bank deposits are moving into money market accounts, WSStweeted {/40}. ‘Trillions of dollars are leaving the banks… . is flowing out into money market funds. It is weakening the banks. Fear that the banks are in danger is driving this trend, which in turn is weakening them further.” The economist’s video statement and WSS tweet provoked a response from Twitter owner Elon Musk. Tesla executiveswarned:
this trend will accelerate.
This is not the first time Musk has sounded the alarm about the U.S. banking system; he has criticized the Federal Reserve several times before: in November 2022, he warned of a severe recession in the U.S. and urged the Fed to cut the federal funds rate. in December 2022 the Twitter owner said the recession would be amplified if the Fed raised interest rates, prompting the central bank to raise rates. Mask also argued in December that the Fed’s rapid rate hikes would go down in history as “the most harmful in history. “After the collapse of the three largest U.S. banks in March, Mask lambasted the Fed’s data delays and called for an immediate cut in interest rates.
What do you think the long-term impact of recent bank failures and declining lending on the U.S. economy will be? What do you think about Elon Musk’s warning? Share your thoughts on this subject in the comments section below.
Image credits: Shutterstock, Pixabay, Wiki Commons, Bloomberg Chart,
