After more than a year of sharp interest rate increases
by the Fed designed to slow the economy in order to cool
inflation, last month's banking turmoil has exacerbated worries
that the central bank's aggressive tightening may trigger a
recession.
Economists and policymakers are watching the Fed's weekly snapshot of the financial condition of the country's banks closely for signs deposit flight has run its course. They are watching just as closely for indications that lenders might start to rein in credit as a result, an action that could accelerate the onset of a economic slowdown or make it worse.
Indeed, overall credit from U.S. banks did decline by a record of more than $120 billion in the latest week, on a nonseasonally adjusted basis, but that was largely the result of banks divesting $87 billion in securities to nonbanks, such as hedgefunds. The Fed said banks had offloaded that amount of assets in each of the two latest weeks, most of it coming in the form of Treasuries and mortgage-backed securities.
The moves coincided with recent sales of various assets of the two failed banks under the direction of the Federal Deposit Insurance Corp, but the Fed did not specify if that was the impetus for the divestitures.
At the same time, however, lending to businesses and consumers by banks held steady with $12.07 trillion in loans outstanding as the month neared its end, up fractionally from a week earlier. While loans for both commercial and residential real estate, and for commercial and industrial loans, a benchmark for business credit, each fell marginally, the declines were offset by a pickup in consumer loans led by credit card balances.
(Reporting By Dan Burns; editing by Diane Craft)
