U.S. bank lending declines for second straight week

Key details: Lending by large banks rose $2.5 billion to $1.55 trillion in the latest week.

Lending by small banks fell $1.8 billion to $718.2 billion. This is the second straight weekly decline.

Total bank deposits rose by $47.1 billion to $17.3 trillion in the same week. Deposits peaked at $18. 21 billion in mid-April.

Big picture: Economists are watching the lending data closely to gauge whether banks are pulling back on lending. If banks pull back sharply, this could cause a “credit crunch” and slow the economy rapidly.

Commercial and industrial lending has fallen for four months in a row.

There is a separate Fed survey, to be released Monday, that tracks whether banks are raising loan standards.

Federal Reserve Chairman Jerome Powell has said the economy is facing headwinds from tighter credit conditions on households and businesses.

“You’ve got lending conditions tight and getting a little tighter, you’ve got weak demand, and you know, it gives a picture of a pretty tight credit conditions in the economy,” Powell said at his press conference on Wednesday following the central bank’s decision to raise interest rates.

“I think it’s really hard to tease out whether how much of that is from this source or that source, but I think what matters is the overall picture is of tight and tightening lending conditions,” he said.

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.50%
closed higher for the week on Friday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.953%
rose 13.1 basis points to 3.97%.