Monthly Macro & Markets: April 2023

Another major bank collapses as data keeps pointing to a weakening US economy

Executive summary

Deposits & the M2 money supply continue to fall

April saw a continued decline in both commercial bank deposits (which on 19 April, were down 4.4% YoY) and the M2 money supply (which at the end of March, was down 4.0% YoY).

While the steep declines in both deposits and the M2 money supply may lead some to believe that the worst of the decline could be over, the opposite is true — on a 3-month annualised basis, the M2 money supply has seen an enormous decline, and is now down 8.1%.

The Fed’s BTFP treats the symptom, not the disease: First Republic Bank is the case in point

While the Fed implemented its Bank Term Funding Program (BTFP) in an attempt to help banks shore up their liquidity without having to sell bonds at a loss, the problem with this program is that it treats the symptom, not the disease — which is falling deposits. First Republic Bank has provided a case in point, whereby despite borrowing $13.8bn from the BTFP, it failed anyway, as it saw an enormous deposit…