The H.8 Release from the Federal Reserve’s Board of Governors details aggregate balance sheet data (assets and liabilities) for all US commercial banks, and the data can be found in FRED. The first post on this topic examined recent trends in total bank assets for large and small banks. The second examined recent trends in the securities held by large and small banks. This post (the 3rd of 3) examines recent trends in bank loans and leases and deposits at large and small banks.

In the aggregate, the largest category on the asset side of commercial bank balance sheets is loans and leases. Loans and leases include (a) commercial and industrial loans, (b) residential and commercial real estate loans, (c) consumer loans, and (d) all other loans and leases. Our first FRED graph (above) plots loans and leases as a percentage of total assets for large and small commercial banks. A few things are worth noting in the FRED graph.

• Small banks have a larger percentage of their assets as loans and leases compared with large banks.
• Loans and leases tend to be sensitive to the state of the economy. During the past recession (February 2020 to May 2020), loans and leases as a percent of total assets fell sharply at small and large banks. However, the share of loans fell proportionately more for large banks—from 55.6% for the week ending January 29, 2020, to 51.4% for the week ending May 27, 2020 (roughly corresponding to the beginning and end of the recession). Over this period, loans and leases as a percent of total assets only fell from 68.3% to 66.4% at small banks.
• Since the end of the recession in May 2020, banks have once again been increasing loans and leases as a percent of total assets. However, the share of loans and leases on the asset side has not yet returned to its pre-pandemic levels for both categories of banks.

Fundamentally, commercial banks are in the business of intermediation. That is, they take deposits from customers—individuals or businesses—and use those deposits to finance loans or the purchase of other assets that increase bank earnings and thus profits. Deposits are the largest liability on a commercial bank’s balance sheet.

Our second FRED graph plots total deposits as a percentage of total liabilities since the beginning of 2015. Over most of this period, deposits (insured and uninsured) comprised roughly 90% of total liabilities for small banks. Beginning in mid-2019, though, small banks have increased their deposit-to-liability percentage (deposit ratio), which reached 94% in late February 2022. By contrast, large banks initially used other sources of funding, as their deposit ratio was much smaller in early 2015—roughly 83%. Over time, though, large banks have also sharply increased their deposit ratio, and it eventually rose to about 96% in early April 2022.

A good portion of the surge in bank deposits was pandemic related: fiscal stimulus and a decline in discretionary funding by individuals that led to increased personal savings. Acharya et al. show that bank deposits also increase when the Federal Reserve engages in large-scale asset purchases (quantitative easing), as it did from mid-March 2020 through June 1, 2022. Moreover, they show that a large percentage of these increased deposits were uninsured. From March 31, 2020, to December 31, 2022, uninsured deposits at US chartered banks increased by $1.56 trillion to $7.79 trillion.

The last few data points in the second graph are striking. Deposits as a percent of total liabilities have fallen sharply in response to numerous factors: One is the FOMC’s tightening actions, which reduce reserves, and another is recent market turmoil that was spurred, in part, by the recent failures at one large bank (Silicon Valley Bank, or SVB) and one “small” bank (Signature Bank).

Recent actions by the Federal Reserve, FDIC, and US Treasury have attempted to calm the fears of both depositors and investors in the U.S. commercial banking sector. Nevertheless, there has been some deposit flight from small commercial banks to larger banks and from commercial banks to money market mutual funds. In response, banks have greatly increased their borrowings (which include discount loans from the Reserve Banks). From the week ending March 8, 2023, to the week ending March 29, borrowings by small banks rose by 42.2%, or $175 billion, while borrowings by large banks rose by 47.7%, or by $304.4 billion.

FRED users who are interested in monitoring the US commercial banking sector can do so by analyzing weekly trends in commercial banks’ balance sheets in found in the H.8 data.

How this graph was created: First graph: Search FRED for and select “Loans and Leases in Bank Credit, Small Banks.” Click on “Edit Graph” and use “Edit Line” to search for and add to that new line the “Total Assets, Small Banks” series and apply formula (a/b)*100. Do the same for large banks. Second graph: Do the same as with the first, but use the “Deposits” series instead of the loans and leases series for small and large banks. Start the graph on 2015-01-01.

Suggested by Kevin Kliesen and Cassie Marks.