In just one week, the U.S. banking system borrowed nearly $47 billion from the Federal Reserve (Fed), hoping to restore trust and remedy deposit flight from smaller financial institutions and retain customers or bring them back, reported Bloomberg.
According to new stats compiled by the Federal Reserve Economic Data (FRED) system, U.S. regional banks are also relying on third-party brokered deposits to prop their bottom line.
This could prove to be a quick fix to deposit flights from less sturdy U.S. banks but it comes at a cost, threatening to leave strained banks paying more to compile the cash they need than they earn by lending it out.
The total amount of deposits in U.S. banks currently stands at $17.34 trillion.
Read: What to expect from Wednesday’s Federal Reserve meeting?
Worst case scenario
The biggest U.S. banks could lose $541 billion in a hypothetical doomsday economic scenario but would still have more than enough capital to soak up the losses, according to annual stress tests conducted by the Federal Reserve.
Passing grades were issued by the Fed to large banks including JPMorgan Chase and Goldman Sachs. This comes months after three of the largest bank failures in U.S. history, including Silicon Valley Bank, Signature Bank and First Republic caused a banking crisis with global implications and leading to many smaller U.S. bank customers moving their deposits to larger institutions.
Outflows from smaller lenders have recently leveled off but borrowing costs are continuing to rise as the Fed continues raising interest rates to fight off stubborn inflation, and so mortgages and loans will continue to get more expensive.
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