Total assets of commercial banks in the US spiked up by $2.5 trillion (T) in the three months ending April 2020. Since then, total assets have contracted slightly (-$117bn) but, while total assets have hardly changed, this hides some far sharper changes in the composition.
Consumer loans fell sharply at the onset of the lockdown, mainly, we suspect, from consumers channeling spare cash into repaying debt.
Residential real estate loans are also falling.
Loans to the business sector spiked sharply in the early months, as business drew on existing credit facilities, but then declined by $270bn by September 2020.
Commercial real estate loans are edging higher, up $58bn since Feb 2020.
Investments in Federal debt (Treasury and Agency Securities) climbed $466bn since Feb 2020, to more than $3.6T.
While cash assets soared by $1183bn, to over $3.0T.
Cash assets held by commercial banks are mainly reserves on deposit at the Fed, as the chart below illustrates, which represents indirect lending to the Federal government (via QE).
The combined total — Treasury & Agency Securities plus Cash Assets — represents an increase of almost $1.65T since Feb 2020.
Consumers have received limited assistance from banks since the start of the recession. Business was able to draw on existing credit facilities at the onset but overall credit to commerce and industry is now contracting. Bank assets are instead flowing into federal debt, either Treasury & Agency Securities or indirectly, through reserves on deposit at the Fed.
There are no free lunches. Low interest rates are squeezing net interest margins, making banks increasingly risk averse.
This is likely to restrict new business investment as well as sales of consumer durables — motor vehicles, housing and furnishings — which would inhibit future growth.