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The Numbers


According to the Federal Reserve, commercial and industrial loans, which are a crucial driver of the economy, decreased by $7.9 billion to $2.75 trillion during the week ended June 28.

It’s worth noting that C&I loans reached a peak of $2.82 trillion in mid-March, shortly before the collapse of Silicon Valley Bank.

Key Details

During the same week, total bank deposits also experienced a decrease, slipping by $900 million to $17.34 trillion. Deposits reached their highest point at $18.21 billion in mid-April.

To mitigate the risk of banks having to sell assets if customers withdraw their deposits in the pursuit of higher yields, the Federal Reserve has implemented an emergency backstop program.

Ensuring Credit Flow

The data provided by the Fed regarding lending serves as a valuable tool for analysts to monitor the availability of credit within the economy. Excessive tightening of lending by banks can potentially lead to a “credit crunch” scenario, effectively freezing the economy.

However, there has been a shift in sentiment over the past few weeks amongst economists and Fed officials, who now believe that concerns about a credit crunch were overstated.

Adverse Developments on the Horizon

Recently, some troubling events have shaken the stability of certain financial institutions due to increasing rates within their liquidity portfolios. It is important to note, however, that these incidents are isolated and do not indicate any systemic weaknesses within the overall economy.

According to Steve Ricchiuto, the chief U.S. economist at Mizuho Securities, the collapse of SVB and a few other banks can be attributed to idiosyncratic factors. Ricchiuto explains that these events have progressively unfolded over the past four months, ultimately revealing that the anticipated credit crunch has been more of a mild credit squeeze.

While some economists believe that banks will gradually retract their activities, they predict that the true impact on the economy will only be felt later in the fall or early winter seasons.

Market Response

The stock market, reflecting these concerns, experienced declines on Friday. The DJIA fell by 0.55%, the SPX saw a decrease of 0.29%, and the COMP dropped by 0.13%. As a result, all three major indexes ended the week with losses. Furthermore, the yield on the 10-year Treasury note reached 4.047%, its highest level since March 2nd.

These developments demonstrate the current uncertainty in the financial landscape and signal potential challenges ahead. It is crucial for both investors and analysts to closely monitor these trends as they continue to unfold.

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