Federal Reserve Reports Decline in Commercial and Industrial Loans

The Federal Reserve announced that commercial and industrial loans, a vital driver of the economy, declined by $2.4 billion in the week ending Aug. 23. This drop brought the total value of these loans to $2.76 trillion, marking a decrease from the peak of $2.82 trillion reached in mid-March, just before the collapse of Silicon Valley Bank.

Key Details

In the latest week, lending by large banks declined by $2.7 billion to $1.54 trillion. Conversely, lending by small banks increased by $700 million to $718.4 billion. It is worth noting that lending by small banks has shown signs of improvement in recent weeks.

Moreover, total bank deposits experienced a $45.4 billion increase, bringing the overall value to $17.3 trillion during the same week. However, despite this gain, deposits remain below the level they were at the beginning of August. Deposits reached their peak at $18.2 trillion in mid-April 2022 when the Federal Reserve started increasing interest rates.

The Big Picture

Commercial and industrial lending had been declining consistently for four consecutive months until July. Additionally, banks are tightening their loan standards and conditions, which is having an impact on financial conditions for the wider economy. While Federal Reserve officials are content with a slower-growing economy, they are wary of a potential "credit crunch" that could cause a sharp decline in economic activity.

Market Reaction

Following the release of the jobs report indicating a cooling off in the labor markets during August, U.S. stocks mostly ended the week with gains. The yield on the 10-year Treasury note finished at 4.18%, representing a decrease of 7 basis points for the week.