Bank Failures Explained: Questions, Answers and How CRE Fits In


Deposit flows: If deposits keep flowing out, that’s a sign of building trouble and a loss of confidence. Every Friday the Fed publishes the H.8 release which includes weekly updates on the assets and liabilities of banks—you guessed it, deposits! Deposits were at $17.7 trillion pre-SVB (March 1) versus $17.3 trillion (April 5). A few key notes: Deposits had peaked in April 2022 and were gradually declining as money market rates exceeded savings rates—the pace of decline was manageable until a panic. Most of this was unnoticed and concentrated in large banks. However, since SVB, there has been a shift in deposits towards larger banks from smaller banks, but this appears to have stabilized. We will be monitoring weekly for this. Bank lending: In the same H.8 release, the Fed publishes weekly lending volumes by commercial banks. In the two weeks ending on March 29, bank data showed a pull back on multifamily, ADC and nonfarm nonresidential lending by $35 billion, the most significant two-week decline in the series. In the week ending April 5, such lending increased by $334 million (a reversal). It is unclear if the sharp pullback reported earlier was due to the transfer of SVB and Signature’s assets to receivership at the FDIC. Given the attention on CRE and credit risk now, versus the initial panic, it will be very important to watch this data to really understand how banks are navigating incoming maturities, and to what extent bank credit is diminishing. Fed balances: A sizable increase in the provision of credit by the Fed would signal that ongoing liquidity issues are not resolving. Every Thursday, the Fed publishes the H.4 release which includes information about factors that affect reserve balances—this includes draws at the discount window (primary credit) and the new BTFP, as well as many other levers the Fed uses to provide liquidity to banks. Since March 1, a few line items have moved a lot:

• Primary credit: up from $4.8 billion on March 8 to $68 billion on April 12, but down by a significant $85 billion from its peak on March 15 ($152 billion). It appears some of the initial volumes borrowed shifted to BTFP (which was not operational the full week before March 15). • BTFP: up from $0 (not existing) to $72 billion. BTFP borrowing peaked the week of April 5 at $79 billion and receded in the most recent week of data. • USD swap lines to foreign central banks: surged by $60 billion after the acquisition of Credit Suisse but declined in each of the weeks following. This is a sign other central banks needed help getting dollars, but that need is dissipating. Currently, this volume stands at $30 billion, half of its original amount. • “Other Credit Extensions”: the line item that contains loans to the FDIC bridge banks was up from $0 on March 8 to $180 billion on March 22 with the biggest jump the week of the bank failures (it jumped by $143 billion that week and by $37 billion the following week). In the latest week available, this line was down from its $180 billion peak, at $173 billion. Jobless claims: Job losses and quickly falling inflation is the narrow path for the Fed to pivot and begin cutting rates ahead of 2024. Every Thursday, the Employment & Training Administration releases a count of initial claims for unemployment insurance. A rapid increase in these numbers within a three-month period is typically a sign that a recession is starting, and that job losses are happening (and should be reflected in the Bureau of Labor Statistics numbers shortly thereafter). Any rapid changes from week to week will be key to note.

When will we know if the banking crisis is over? What are you watching?


We wouldn’t call three banks out of nearly 5,000 a crisis, but here’s what we are watching.

Bank Failures Explained - Questions, Answers and How CRE Fits In


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