The banking industry in the United States is still struggling after the collapse of three major banks. According to statistics, bank lending in the US dropped by close to $105 billion in the last two weeks of March, which is the biggest drop on record. In addition, Elon Musk, a Tesla executive and owner of Twitter, recently commented on the withdrawal of trillions of dollars from banks to money market funds, insisting that the “trend will accelerate.”
The statistics still show clear signs of the weaknesses of US banks; Musk Trouble Warning
There are still plenty of signs that the US banking system is feeling the pinch from several high-profile bank collapses. During the first week of March, Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank (SBNY) closed operations. Both SVB and SBNY came under government control. The US Federal Reserve, Treasury and Federal Deposit Insurance Corporation (FDIC) bailed out uninsured depositors of SBNY and SVB and indemnified all depositors.
Since then, banking contagion has spread across the United States and internationally, with financial institutions like SVB UK and Credit Suisse reeling. According to a recent report As published by Bloomberg, the last two weeks of March saw the largest contraction in loans on record after the crashes. The Federal Reserve’s data on the subject only goes back to 1973, and in the last two weeks of March 2023 nearly $105 billion was erased.
Bloomberg’s Alexandre Tanzi explains 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 In addition, $64.7 billion in commercial bank deposits were withdrawn from financial institutions last week, marking the 10th consecutive weekly decline in deposits. Another sign of trouble is the increase in the bond issuance of the Federal Home Loan Bank (FHLB) in March. Jack Farley, journalist and macro researcher at Blockworks, shared a chart showing that FHLB bond issuance increased last month “to just under a quarter of a trillion dollars.” Farley added:
This is more than six times the post-GFC average for the month of March and indicates the banks’ scramble for cash.
In addition, the popular Twitter account Wall Street Silver (WSS) shared an economist video Peter Saint Onge explaining that a significant amount of bank deposits are moving to money market accounts. WSS tweeted, “Trillions of dollars are draining from the banks…into money market funds. That weakens the banks. The fear that banks are at risk is driving this trend and therefore further weakening banks. The economist’s video statement and WSS tweet prompted a response from Twitter owner Elon Musk. The Tesla Executive warned:
This trend will accelerate.
This is not the first time Musk has warned the public about the US banking system, as he has criticized the US Federal Reserve on several occasions. In November 2022, Musk warned that the US would experience a severe recession and urged the Federal Reserve to slash the fed funds rate. In December 2022, the owner of Twitter said that a recession would be amplified if the Fed raised the interest rate and the central bank raised the rate. Musk also insisted in December that the Fed’s rapid rate hikes would go down in history as one of the “most damaging ever.” After the top three US banks failed in March, Musk criticized the latency of the Fed’s data and called for an immediate drop in interest rates.
What do you think will be the long-term effects of the recent bank collapses and lending crunch on the US economy? What do you think about Elon Musk’s warning? Share your thoughts on this topic in the comments section below.
image credits: Shutterstock, Pixabay, Wiki Commons, Bloomberg graphic,
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