This Week’s Bank Tracker: Key Dates, SLOOS Results, PacWest, Fed Balances, and Interest Rates

What We’re Watching

Key upcoming data points. A few key things we are watching in the upcoming week:

• May 15: April 10-D filings (master trust data)

• May 16, 10am: Senate Banking Committee hearing: Examining the Failures of Silicon Valley Bank and Signature Bank; for details, please refer to FactSet’s FinReg Library.

• May 16, 10am: House Financial Services Committee hearing: Oversight of Financial Regulators; for details, please refer to FactSet’s FinReg Library.

• May 17, 10am: House Financial Services Committee hearing: Continued Oversight Over Regional Bank Failures; for details, please refer to FactSet’s FinReg Library.

• May 18, 9:30am: Senate Banking Committee hearing: Oversight of Financial Regulators; for details, please refer to FactSet’s FinReg Library.

• May 18: Fed H.4.1. release, ICI money market fund assets

• May 19: Fed H.8. release

• May 22: JP Morgan Chase’s investor day, which promises to offer useful read-throughs across the financial sector, in addition to incremental detail on the First Republic integration.

This Week’s Additions to the FinReg Library

Now available for download. Our compilation of bank crisis data from wide-ranging government sources, including links to regulators’ reports, hearings past and future (with transcripts where available), legislation, and other documents is now available for download in a single file at this link. This week’s additions to the FinReg Library include:

• FDIC proposed rule & fact sheet for special assessments
• California Department of Financial Protection & Innovation review of the oversight of Silicon Valley Bank
• Federal Reserve Financial Stability Report
• Fed Governor Bowman’s speech on bank runs
• Congressional Research Service report on Lenders of Next-to-Last and Last Resort
• House companion bill to Senator Warren’s Failed Bank Executives Clawback Act
• Updated hearings calendar

SLOOS Results: Ominous

The Fed’s Senior Loan Officer Opinion Survey results were quite bearish. The Fed’s quarterly survey of senior loan officers showed levels of credit tightening seen only rarely, and generally during crises and/or recessions. Figures 1-3 show results over the past 30 years for CRE loans, C&I loans to large & medium firms, and C&I loans to small firms, respectively; none of them are reassuring. Possibly the most bullish spin one might put on the results is that, since the SLOOS is a diffusion index (like looking at the advance/decline ratio in the stock market), it tells us nothing about the magnitude of the credit tightening—we can’t say based on this whether banks are simply becoming a bit more conservative in their underwriting, or are shutting off the spigot entirely. While accurate, we find it difficult to take much solace from that observation.

Figure 1: Net Percentage of Banks Tightening CRE Loan Standards

Figure 2: Net Percentage of Banks Tightening C&I Loan Standards for Large- and Medium-Sized Firms

Figure 3: Net Percentage of Banks Tightening C&I Loan Standards for Small Firms

PacWest’s 10-Q

PacWest deposit decline is not only a problem for Pacwest. PacWest’s 10-Q contained the update that during the week ended May 5, deposits declined by 9.5%, with most of the decline coming on the Thursday and Friday of that week. This is obviously an additional, unneeded headache for PacWest; while the bank has ample liquidity available to absorb the outflows and continue functioning, it puts incremental pressure on the margin and further constrains the bank’s opportunity set. To reiterate, while PacWest’s problems are similar in kind to those of recently failed banks, they are materially smaller in magnitude, affording management more time and levers with which to attempt to resolve them. Yet given what we know about the first week of May, one has to wonder whether the disclosure in the 10-Q, and resulting stock price decline, catalyzed further deposit outflows in an echo of the prior week’s events.

A new variant of contagion. The really concerning aspect of PacWest’s May outflows is that depositor behavior appears to have been driven, at least in significant part, by the decline in the stock following the resolution of First Republic, and related media attention. That dynamic wasn’t entirely absent from the failed banks, but those banks also had fundamentally insoluble problems that would cause a rational actor to worry about uninsured deposits. If we are entering an environment in which short selling drives a bank’s stock down, and that leads to deposit outflows that validate the short thesis, then that is a different risk than that with which we dealt in March. If we are lucky, the worries around PacWest will dissipate as they did after Deutsche Bank’s brief wobble. Otherwise, this dynamic could spread quickly.

Figure 4: PacWest Short Interest

Weekly Federal Reserve Balances

May 10 Federal Reserve balances show impact of FRC resolution and lower BTFP usage. Figures 5 and 6 highlight the key data points from last week’s release of Federal Reserve balances (Release H.4.1). Discount Window usage ticked up a bit (the percentage increase is large, reflecting the low base), and Bank Term Funding Program usage reached a new peak.  

Figure 5: Federal Reserve Balances

Figure 6: Bank Term Funding Program Usage Reached a New Peak Last Week

Money market assets reach new peak. Money market assets rose slightly, up $18 billion (0.35%) in the week ended May 10. Since March 8, that leaves money market assets up a total of $434 billion (8.9%).

Figure 7: Money Market Fund Assets ($Trillions)

Total commercial bank deposits dip. Total deposits dipped slightly in the week ended May 3, falling $14 billion (8bps). Year-over-year, total deposits are down 5%, with half of that decline coming since March 8. Notably, these figures include the growing share of large time deposits in total industry deposits—a macro version of the dynamic we saw in extreme form at First Republic, where outflows of noninterest-bearing deposits were mitigated by inflows of high-cost (4-5%) CDs. In other words, this decline in total deposits understates the headwind to banks’ margins and overall firm values (including as acquisition targets).

Figure 8: Bank Deposits Declined

Figure 9: Total Industry Deposits Continue Declining, Albeit at a Slower Rate Than March

Total loans grew. Total loans were down $16 billion (13bps) in the week ended May 3, which left them up 53bps 2Q-to-date, which translates to about 5% annualized growth. C&I loans were down $6 billion (22bps) for the week, and up 40bps QTD (4% annualized). Commercial real estate loans were up $3 billion (10bps) for the week, which puts them on pace for roughly 8% annualized growth QTD. 

Figure 10: Total Loans Declined Slightly In The Most Recent Week

Figure 11: Total Bank Loans by Week ($Trillions)

Interest Rates

Fed Funds futures continue to imply a summer pause and autumn easing. As Figures 12-14 show, the yield curve remains inverted, but Fed Funds futures imply (as of this writing) that this tightening cycle, the steepest in over 40 years, is over. Futures imply an overwhelming probability of a pause at the June 14 FOMC meeting, with 25bp cuts implied for each of the September, November, December, and January meetings. There has, however, been a very slight shift in probabilities over the past week, toward a slower pace of easing in autumn.

Figure 12: The Yield Curve Remains Inverted 

Figure 13: Fed Funds Futures Discount a Pause at the June 14 FOMC Meeting 

Figure 14: Fed Funds Futures Imply a Summer Pause Followed by Autumn Rate Cuts

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.