The banking industry in the United States is still struggling after the collapse of three major banks. According to statistics, bank lending in the U.S. has dropped by close to $105 billion in the last two weeks of March, which is the largest decline on record. Additionally, Elon Musk, a Tesla executive and owner of Twitter, recently commented on trillions of dollars being withdrawn from banks into money market funds, and he insists that the “trend will accelerate.”
Statistics Still Show Glaring Signs of U.S. Bank Weaknesses; Musk Issues Warning
There are still plenty of signs showing that the U.S. banking system is feeling the aftermath of several high-profile bank collapses. During the first week of March, Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank (SBNY) closed down operations. Both SVB and SBNY were placed under government control. The U.S. Federal Reserve, Treasury, and Federal Deposit Insurance Corporation (FDIC) bailed out SBNY and SVB’s uninsured depositors and made all depositors whole.
Since then, the banking contagion has spread across the United States and internationally, with financial institutions like SVB UK and Credit Suisse faltering. According to a recent report published by Bloomberg, the last two weeks of March saw the largest contraction in lending on record after the collapses. The Federal Reserve’s data on the subject only goes back to 1973, and in the last two weeks of March 2023, almost $105 billion was erased.
Alexandre Tanzi from Bloomberg explains that loans consisted of industrial, commercial, and real estate loans. Furthermore, last week saw $64.7 billion in commercial bank deposits removed from financial institutions, which marked the 10th straight weekly decline in deposits. Another sign of trouble is the spike in Federal Home Loan Bank (FHLB) bond issuance in March. Jack Farley, a journalist and macro researcher for Blockworks, shared a chart showing FHLB bond issuance surging last month “to just under a quarter trillion dollars.” Farley added:
This is over six times the post-GFC average for the month of March and it indicates banks’ scramble for cash.
Moreover, the popular Twitter account Wall Street Silver (WSS) shared a video of economist Peter St. Onge explaining that a significant amount of bank deposits are moving to money market accounts. WSS tweeted, “Trillions of dollars are draining out of the banks… into money market funds. That weakens the banks. Fear that the banks are at risk is driving this trend and thus making the banks even weaker.” The economist’s video statement and WSS’s tweet sparked a response from Twitter’s owner, Elon Musk. The Tesla executive warned:
This trend will accelerate.
This is not the first time Musk has cautioned the public about the U.S. banking system, as he has criticized the U.S. Federal Reserve on several occasions. In November 2022, Musk warned that the U.S. would see a severe recession and urged the Fed to slash the federal funds rate. In December 2022, the owner of Twitter said that a recession would amplify if the Fed raised the interest rate and the central bank increased 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 three major U.S. banks failed in March, Musk lambasted the Fed’s data latency and called for an immediate drop in interest rates.
What do you think the long-term effects of the recent bank collapses and decrease in lending will be on the U.S. economy? What do you think about Elon Musk’s warning? Share your thoughts about this subject in the comments section below.