Bank deposits stabilize, while lending is trending down sharply in aftermath of Silicon Valley Bank’s collapse

There has been a sharp drop-off in lending.

There has been a sharp drop-off in lending since the Silicon Valley Bank collapse. Total commercial and industrial loans fell $68 billion over the two weeks since the startling bank run led the government to close the bank.

Key details: Deposits at large U.S.-owned banks climbed by $49 billion to $10.75 trillion, based on the Fed’s weekly H8 survey.

Small banks saw an inflow of $26 billion in the week ended March 29.

Real-estate lending was down $34.9 billion over the past two weeks.

Consumer loans rose $15 billion over the same period.

Big picture: Wall Street
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is watching the Fed report to see if bank deposits continue to decline or a so-called credit crunch emerges.

Deposits had fallen sharply earlier in March, particularly at small banks, after the collapse of Santa Clara, Calif.–based Silicon Valley Bank, where deposit flight was a surprisingly critical factor.

Concerned there might be similar runs at other bank, the Federal Reserve quickly intervened with an emergency lending program to let banks get quick loans if they needed to pay depositors without having to sell their securities at a loss. The effort appears to be working.

Some economists are forecasting that the drop in lending will continue. At the same time, businesses and households could pull back spending due to uncertainty.

Fed officials have said in recent days that they will watch for the magnitude and duration of these expected effects. Some of the central bankers have said this stress raises the risk of recession.

Economists at Deutsche Bank forecast that a tightening of bank lending conditions could reduce growth by an amount roughly equivalent to two or three 25-basis-point interest-rate increases.