Deposits at FDIC-insured banks fell $370 billion in the second quarter of 2022, The Wall Street Journal reported Tuesday.
The outlet deemed the news important enough to lead its business coverage five days after the data went public.
Yet, when the Federal Deposit Insurance Corp. (FDIC) released its Quarterly Banking Profile last week, news that deposits declined (beyond a bullet point) appeared in the second-to-last paragraph of its release, only as a percentage (“insured deposits fell 0.7 percent,” the FDIC said, with no mention of a dollar figure) and without historical context.
The FDIC’s acting chair, Martin Gruenberg, noted in an opening statement last week — and the bullet point does, too — that it’s the first quarterly drop in deposits since 2018. However, Gruenberg tempered that by saying deposits are still “well above” pre-pandemic levels, and noted that insured deposits had grown more than 4% year over year — a prospect he called “very strong,” according to American Banker.
It yields the question: How big of a deal is the decline — and how historic? The quarterly drop is the first in four years. But a slump that spans 2022 would be a first in 80.
By the same measure, the pendulum must return eventually, right? Total deposits had increased by more than $5 trillion, or 35%, since the beginning of the COVID-19 pandemic, according to the FDIC. That level of growth would hardly be sustainable.
The banking industry, as of April, counted $8.5 trillion more in deposits than loans, Barclays analysts said at the time.
“These are deposits they don’t really need,” one of the bank’s analysts, Jason Goldberg, told The Wall Street Journal.
The glut of deposits had some banks flirting with the regulatory limits on their capital, and pushing customers to put some of their deposits in money market funds.
The Federal Reserve’s upsurge on interest rates since April may have provided some relief to banks, as they anticipated depositors would move their money to higher interest-bearing venues.
But money movement hasn’t been entirely predictable. The Federal Reserve Bank of New York’s reverse repo facility, where some of the deposit overflow went via money market funds, has continued to grow even after interest rates jumped. The facility has swollen to roughly $2.2 trillion, from about $1.7 trillion in April.
The flip side of the loan/deposit coin may offer another clue as to economic health. Loan and lease balances jumped 8.4% year over year in the second quarter, according to the FDIC. That’s the sharpest uptick for any quarter since 2008, driven by an 11.6% spike in consumer loans.
Loans that were 90 or more days past due saw a 7.6% drop from the first quarter. But early delinquencies — payments that are behind by 30 to 89 days — jumped 25% from the second quarter of 2021.
"These early delinquencies could be an indicator of future asset quality risk and will be an area of supervisory monitoring," Gruenberg said, according to American Banker.
Beyond their customers, banks themselves saw an 8.5% dip in profit during the second quarter, compared with a year earlier, according to the FDIC. However, that still represents a 7.8% increase from this year’s first quarter. About 51.5% of banks reported an annual decline in quarterly net income, the FDIC found.
Perhaps the wildest swing came in provision expense, which increased from minus-$10.8 billion in 2021’s second quarter to positive $11.1 billion between April and June.