U.S. lenders are holding onto large piles of cash as insurance against a slowing economy, continuing deposit outflows and looming tougher liquidity rules that could particularly impact mid-sized banks, Reuters reported. The buildup is another example of a risk-averse approach from a sector still trying to regain its footing after a string of springtime bank failures, one which could result in restrained lending. "This is a logical response to a slowing economy and particularly to a scenario, where you're seeing deposit outflows and you need to conserve cash," said David Fanger, senior vice president at Moody's rating agency. "What happened in March was a big wake-up call." The collapse of Silicon Valley Bank and Signature Bank in March triggered massive deposit withdrawals and placed renewed focus on lenders' financial health. More recently, the sector was hit by ratings downgrades when S&P last month cut credit ratings and revised its outlook for multiple U.S. banks, following a similar move by Moody's. Overall U.S. banks' cash assets were $3.26 trillion as of Aug. 23, up 5.4% from the end of 2022. That was well above typical pre-pandemic levels, though down from the weeks immediately following the bank failures in March, Federal Reserve data shows.
