The Federal Reserve’s FRED data on commercial bank deposits was just updated through the week of 3/15.  From the prior week, deposits fell roughly $100 billion, or about 0.56% from $17.6 trillion down to $17.5 trillion.  A week-over-week decline of 0.56% is nothing out of the norm, although it was the biggest decline in percentage terms since last April when deposits fell 0.6% during the week of 4/20.

What is out of the norm is the drop we’ve seen in bank deposits over the last year.  Prior to 2023, the largest year-over-year decline we’d ever seen in bank deposits was a 1.58% drop back in September 1994.  That record drop was broken earlier this year when we got a reading of -1.61% during the week of 2/1.  Since 2/1, the year-over-year decline has only gotten worse.  As of the most recent week (3/15), the year-over-year decline stands at -3.33%.

Below is a chart showing the year-over-year change in commercial bank deposits using data from FRED.  What stands out the most is not just that we’re now at record YoY lows, but that it’s coming after what had been record YoY increases in deposits.  Remember, after COVID hit, the government deposited cash into the bank accounts of Americans multiple times.

Below is a look at the absolute level of commercial bank deposits over the years going back to 1974 when FRED’s data begins.  During the COVID recession from March through May 2020, bank deposits increased roughly $2 trillion.  As you can see in the chart, we’ve never seen a spike anywhere near as large over such a short period of time.  Notably, though, deposits kept on running higher for the next two years, rising another $2.8 trillion by the time they peaked at $18.16 trillion in mid-April 2022.  That peak came a month after the Fed’s first rate hike of the current tightening cycle, and since then we’ve seen deposits fall about $650 billion from their highs.  Given how elevated deposits remain above pre-COVID levels, there’s no reason to think they won’t fall further unless banks really step up the interest they’re paying on deposits given a Fed Funds rate of 5%.

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