Benzinga - by Bibhu Pattnaik, Benzinga Staff Writer.
Recent data reveals a substantial exodus of deposits from U.S. banks, increasing apprehensions about the robustness of the nation's financial institutions.
What Happened: According to Federal Reserve Economic Data, there was a staggering $100 billion reduction in deposits within U.S. commercial banks in just three weeks.
Specifically, the deposits plummeted from $17.38 trillion on Sept. 27 to a concerning $17.28 trillion by Oct. 18.
The alarming trend coincided with a survey spearheaded by the Federal Reserve. Engaging 25 diverse participants, including market experts, academicians and investment strategists, the survey aimed to assess the current health and future trajectory of the banking sector.
According to the survey, despite the banking sector's apparent stability after the financial hiccups earlier this year, most believed looming threats persist.
The survey participants said in the report, "Although survey respondents noted the banking sector has stabilized since the period of acute stress earlier this year, many highlighted risks of renewed deposit outflows given that large portions of deposits remain uninsured."
Also Read: US Banking Titans JPMorgan Chase, Wells Fargo And Citigroup Lose $84.5 Billion In Deposits Amid Global Uncertainties
The survey also highlighted another concern about the commercial real estate (CRE) sector. With fluctuating interest rates and dwindling demand for office spaces thanks to the burgeoning hybrid work culture, the CRE sector has emerged as a potential destabilizer.
The survey's findings indicated, "Survey respondents viewed small and regional domestic banks as particularly vulnerable due to their higher concentration of CRE exposures, which could lead to tighter bank lending conditions."
Such concerns have cast shadows over the banking stocks, such as Bank of America Corp (NYSE: BAC) and JPMorgan Chase & Co. (NYSE: JPM), as well as ETFs, like the Financial Select Sector SPDR Fund (NYSE: XLF) and the Vanguard Financials ETF (NYSE: VFH), with investors closely monitoring the situation. A prolonged deposit flight could weaken the banks' liquidity positions, potentially affecting their lending capabilities and overall financial health.
Now Read: Here's How $78 Billion Exited The US Banking System In Just One Week
This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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