Bank Balance Sheet Management as Interest Rates Rise

With Fed expected to boost interest rates another 25 bps this week, what has been happening to bank loan, deposit and balance sheet activity recently.

Loan growth has shown moderate activity in recent weeks, but remains generally flat over the past year. Smaller community banks were showing slightly better loan growth, but remains sluggish.

Interest rates continue the steady, but disciplined increases that the Fed has promised. There has also been a steady flattening of the yield curve, which may be cause for reductions in investment securities holdings by banks of all sizes.

With the latest weekly release of bank balance sheet estimates by the Federal Reserve (H.8 Assets and Liabilities of Commercial Banks in the United States), we continue to see general softening in loan growth, reduction in holdings of investment securities (yield curve slope driven?) and deposit balances flat to down. Is this bank activity reflected of the modestly growing economy? FRB Atlanta's GDPNow is reflecting lower growth expectations for Q1 2018 than recently thought - 1.8% compared to concensus forecast of 2.5%.