Tuesday, March 25, 2008

banks get about $50 billion

commercial banks took in $47.2 billion in deposits in the week ended 3/12/08 following an inflow of $43.3 billion the previous week, bringing cumulative increases since 7/07 to $510 billion. these deposits will help give banks the capacity to make new loans.

deposit balances, which include transaction deposits, certificates of deposits (CDs), and savings deposits, fund about 60% of bank assets. this of course means that banks are very dependent upon deposits as a source of funding and banks certainly need funding these days.

big increases in bank deposits will go a long way toward helping banks handle the many assets they have been forced to absorb onto their balance sheets in recent months, making recent developments especially important. at some point, bank deposits will grow more than enough to both absorb assets and facilitate new lending.

savings deposits have grown sharply over the past decade as a source of funding for commercial banks, representing about 42% of deposits today compared to about 30% a decade ago. it is a relatively cheap source of funding and a stable one. although the fed's interest rate cuts might seem to threaten the growth in bank deposits, it is notable that when the fed cut interest rates substantially in 2001 through 2003, bank deposits continued to grow at a double-digit pace, a faster pace than in the several years prior. that was partly because of the increase in risk aversion that occurred following the bursting of the financial bubble, which obviously is a phenomenon that looks likely to influence bank deposits in the time ahead -- good news for capital-starved banks.

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