Bank deposits have continued to accumulate ahead of what could be a second epic surge during the pandemic era. But the Federal Reserve's decision to sunset an emergency relaxation of capital rules could channel some of the growth away from the biggest banks to smaller competitors and money market funds.
The Treasury Department, which had about $1.6 trillion in its account at the Fed at the beginning of the year, has started drawing funds as it distributes aid under President Joe Biden's $2 trillion relief package — including roughly $250 billion in direct checks to households that the government said had already gone out the door by March 17th. Along with $120 billion of bond purchases by the central bank each month, commercial banks' holdings of reserves, and their balance sheets, could pop again in the coming months.
A burst in growth would echo the initial months of the pandemic in 2020, when the Fed lifted its securities holdings by about $2 trillion from early March to about $6 trillion in late May in an effort to calm markets and support the economy. Commercial bank deposits and balance sheets also grew by about $2 trillion over the same time.
Since then, the growth has been slower, but steady. Seasonally adjusted deposits at commercial banks are up about $500 billion so far in 2021, hitting $16.615 trillion at March 10th, according to the most recent weekly data from the Federal Reserve. Loans, meanwhile, had increased by about $55 billion to $10.438 trillion.
