Banks Still Cautious with Lending Despite Huge Reserves, Keeping High Cash Positions to Avoid Another Crisis
• Banks are still being cautious with lending and liquidity, despite huge reserves, likely due to memories of the 2023 banking crisis
• Banks are keeping high cash positions - about 15% of assets, well above pre-pandemic levels
• This liquidity helps avoid bank runs, but limits lending capacity
• Banks also face upcoming new regulations and changes to the Federal Home Loan Bank system
• Less bank lending capacity could mean more market volatility if trading desks can't facilitate enough client trades