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US Banking Still Healing

In the last few months US banking crisis has stabilised but given the increased usage of the Bank Term Funding Program, it does not look to be over. Even the central bank loans to financial institutions are increasing. These data points confirm concerns that various investors have regarding regional banks and commercial real estate.

The problem with BFTP is that it is set to expire in nine months and if the usage continues to rise then Fed might have a deeper analysis of the problem. Such continuous usage might indicate that there are other shocks in the making.

On the loan and deposit front, the situation continues to be volatile. In the first week of June, the total loans fell by almost $50Bn. At the same time, total deposits also fell by $80Bn. This trend hints towards restrictions on new loans while the saved money is used for payments as money market flows were small.

Given all these data trends there are still a lot of problems that exist but for now, the system can absorb them unless there is a major shock again. The top concern for many right now is commercial real estate as many landlords face rent default leading them to default on the loan payment.

The next crucial event would be the result of the Fed Stress test would be released on 28th June. This would bring out more clarity on the need for capital raised by large and medium banks. The problem with this is, that it does not cover regional banks.


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