Why do US banks "hold" huge amounts of cash?

Data from the US Federal Reserve (Fed) shows that as of August 23, the total cash of US banks increased by 5.4% compared to the end of 2022 to 3,260 billion USD.

US banks hold nearly $3,300 billion in cash. (Source: Spiderum)

The amount of cash is much higher than the normal level before the Covid-19 pandemic.

Cash at small and midsize banks increased 12% from the beginning of the year, while at the 25 largest US banks, cash increased about 2.9%.

Mr. David Fanger, Senior Vice President of Moody's credit rating company, commented that this is a reasonable response to a weakening economy and especially in the context that banks are seeing a decline in deposit flows and they need to hold cash.

He said the collapse of Silicon Valley Bank (SVB) and Signature Bank in March 2023 caused a massive withdrawal of deposits and focused public attention on the financial health of banks.

Recently, the banking sector has also been affected by the credit rating agencies S&P and Moody's downgrading the credit ratings of many US banks last month.

SVB's bankruptcy has prompted banks to increase their cash holdings.

Within two weeks of the incident, US banks’ cash pile rose to $3.49 trillion, the highest since April 2022. It has since fallen but remains nearly double its pre-pandemic level.

Mid-sized banks are also concerned about the possibility of regulators tightening regulations on the sector.

US officials say the country may impose stricter capital and liquidity requirements on banks with assets of $100 billion or more.

Source: https://baoquocte.vn/ngan-hang-my-om-luong-tien-mat-khung-vi-ly-do-gi-241021.html