U.S. Economics – Bank Lending

Intro

Commercial bank loans and leases reached fresh record highs for the tenth week in a row through April 26^th, according to the latest H.8 release from the Federal Reserve. The year-to-date trajectory is above its comparative periods of 2023 and 2024 but could be the result of pull-forward dynamics related to policy uncertainty, similar to what we have seen in other economic data recently. However, if changes in fiscal policy start to have a meaningful negative impact on future economic expectations, we would expect this data to likely turn lower in the next few months. Therefore, we will be watching the direction and pace of loan growth across banks for evidence that their ability or willingness to lend is expanding or shrinking as one indication of their expectations for economic activity.

Growth

The Signals:

• Total Loans & Leases (Chart 1)
  • Commercial bank loans and leases increased by $5.05 million w/w for the week ending April 26^th, down from a $44.16 million rise in the prior week.
• Loans & Leases Mix by Bank Type (Chart 2)
  • The bulk of the weekly growth came from foreign-related institutions (FRI) at $8.45 million and small domestic banks at $2.29 million, while large domestic banks declined by $5.70 million.
• Loans & Leases YoY (Chart 3)
  • On a y/y basis, total loans and leases for all commercial banks decelerated by 5 basis points to 3.66% and the only rate of change acceleration came from FRI's.
    • The y/y pace of FRI and small banks has been diverging over the last year, a dynamic worth tracking in coming quarters.

The Takeaway:

• The latest data still suggests lending activity is robust in absolute terms, but the year-to-date low in w/w terms for large domestic banks and continued y/y deceleration from small banks points to incremental weakness.

Visuals:

(Chart 1)

Source: Macrobond

(Chart 2)

Source: Macrobond

(Chart 3)

Source: Macrobond

Market Trends:

Source: Macrobond

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.