It appears that US savers are withdrawing more and more money from their bank accounts, and recent Federal Reserve numbers confirm this pattern. According to the Federal Reserve Economic Data (FRED) system, people withdrew as much as $30 billion from US bank accounts between May 10 and May 17. This represents an increase of more than $4 billion compared to the previous week.
US banking sector under pressure
At present, the US banking system in total $17.15 trillion in deposits, down from $18.03 trillion a year ago. In other words, there is a clear decline in the amount of money people have deposited in banks.
This withdrawal is a direct result of the failure of three major regional banks: Signature Bank, Silicon Valley Bank and First Republic. However, the problems are not limited to these banks. PacWest, based in Los Angeles and recently in the news for his struggle to stay afloat, sells for example, $2.6 billion in real estate construction loans in an effort to improve its balance sheet.
The Federal Reserve Report warns informs us that more than 700 U.S. banks are currently considered a “significant risk to security and stability.” These banks face unrealized losses that exceed 50% of their capital. The Fed points to its own rate hikes as one of the main causes of the precarious position these banks are in now.
“The Fed’s rate hikes have had a knock-on effect on the financial sector,” the report notes. Unsurprisingly, this is leading to increasing concerns among traders and analysts. According to the Fed Watchtool from CME Group, currently 35.8% of traders think the Fed will hike rates again next month. This may portend further turbulence in the banking system.
Growing confidence in cryptocurrencies
The recent withdrawal of money from the US banking system can be seen as an indication of growing confidence in alternative financial systems, especially cryptocurrencies. People are expressing concerns about the stability of traditional banks and are increasingly turning to digital currencies such as Bitcoin and Ethereum as an alternative way to store value and conduct financial transactions.
It is fascinating to speculate about the potential impact of digital currency adoption on the future of banking. As cryptocurrencies continue to grow and become more accepted by the general public, traditional banks will have to adapt to stay relevant. For example, they can develop new services and products related to cryptocurrencies and blockchain technology. This could lead to a hybrid financial system in which both traditional banks and cryptocurrencies play a role.
The growing popularity of cryptocurrencies and the recent withdrawal of funds from the US banking system indicate a changing landscape in the financial world. The future will tell how cryptocurrencies and traditional banks will interact or compete, and what role each will play in meeting the needs of individuals and businesses in a rapidly changing financial environment.