Observing Recent Changes in Assets Held by Major US Banks [Cash-Bonds-Loans by Bank Size]

We briefly examined the trends in assets to see what direction US banks are heading in the broader context.

Below is a chart showing the trend of total assets for large and small banks from 2015 to the present.

Since US bank statistics are often divided into the top 100 banks and other banks, the distinction between "large" (blue) and "small" (red) here probably refers to whether or not they are among the top 100 banks.

All banks saw a significant increase in total assets from 2020 to 2021 following the COVID-19 pandemic, followed by a gradual trend. Large banks experienced a slight decrease in 2022 before slightly increasing again recently, maintaining their previous peak levels. Small banks have been steadily increasing.

The sharp fluctuation in the total assets graph for small banks in early 2023 is due to the short-lived regional banking crisis that began with the collapse of SVB.

Next is a chart showing how much cash (reserves) banks of each size hold.

The green line shows the trend of total reserves held by banks in the Federal Reserve accounts. Since large banks dominate the total amount, the blue and green lines show almost identical trends.

Following the COVID-19 pandemic, a surge in cash flowed into the banking sector due to quantitative easing until mid-2021. After that, starting in 2022, as the Federal Reserve implemented quantitative tightening, reserves began to decrease for both large and small banks.

After the regional banking crisis in early 2023, the trends for large and small banks, which had previously been similar, began to diverge.

The trend for large banks is almost entirely representative of the movements of top mega-banks in New York such as JP Morgan, BoA, and Citi.

The following shows the trend of loan (loans and leases) assets, which account for the largest portion of bank assets. The yellow line represents the 10-year US Treasury yield.

The trends in loan assets for large and small banks differ somewhat after the COVID-19 pandemic. For large banks, loans surged immediately after the pandemic, but returned to previous levels a year later, suggesting a large volume of temporary loans related to the pandemic were repaid. Small banks, however, maintained the increased loan levels for some time. It seems the nature of the large-scale loans made immediately after the pandemic differed.

A notable trend is that, aside from a slight decrease in loans immediately following the regional banking crisis in early 2023, small banks continue to experience gradual growth. However, large banks have essentially stopped seeing growth in their total loan amounts since late 2022 and early 2023.

Is this due to a lack of increased loan demand? Or is there demand, but only applicants with questionable creditworthiness, leading to stricter lending standards? Or are there regulatory issues?

Next is the trend of government bond holdings. This includes MBS, so it can be considered a representation of the trend in holdings of top-rated bonds.

Large banks continuously reduced their government bond holdings from early 2022, when the Federal Reserve rapidly raised interest rates, until late 2023.

While there has been a recent pause, since late 2023, there has been a resumption of steady increases in government bond holdings. Have they decided that market interest rates won't rise above late-2023 levels?

The following chart shows the trend in holdings of other securities.

This likely categorizes bonds with lower credit ratings than government bonds or MBS. I've seen MBS included here as well. Perhaps the MBS above refers to those issued by government-sponsored mortgage companies like Fannie Mae and Freddie Mac, while this section includes MBS from private companies?

In any case, the characteristic here is that both large and small banks have been reducing their holdings of other securities since 2023. Considering that total assets are still slightly increasing, this means their proportion of total assets is decreasing.

Looking at only the large banks, it's striking that for nearly two years they've been increasing their holdings of top-rated bonds like government bonds and MBS while reducing their holdings of other (lower-rated) securities.

The chart below shows the trend in external borrowing by bank size. The two lines at the bottom show the trend of BTFP and DW (discount window) loans from the Federal Reserve.

BTFP, which is nearing its final maturity in March of next year?, is largely being repaid and is approaching zero. It can be assumed that most of these repayments come from small banks.

Unlike small banks, large banks have been steadily increasing their external borrowing over the past year and a half. Is this simply a precautionary measure to maintain cash reserves amid ongoing quantitative tightening, or is there another reason?

Looking at this in conjunction with other charts, it is noteworthy that large banks have been consistently increasing their holdings of government bonds while decreasing their holdings of less secure securities, even resorting to external borrowing. This trend has persisted for 1.5 to almost 2 years.

This trend is likely reflected in the actions of the largest mega-banks. What are they seeing that's leading to this behavioral pattern?