(Bloomberg) -- An increase in US commercial banks’ borrowings suggests they’re uncomfortable losing any more reserves as depositors seek better returns elsewhere, according to Citigroup Inc. Most Read from BloombergXi’s Missing Defense Chief Opens Door for US Military TalksHow Auto Executives Misread the UAW Ahead of Historic StrikeTrillion-Dollar Industry Powering Chicago at Risk of LeavingVegas’ Newest Resort Is a $3.7 Billion Palace, 23 Years in the MakingUS Asks for Help Finding Missing F-35
After declines in June and July, the largest US banks increased their borrowing in August by 9%, or $70 billion, Federal Reserve data show. Concurrently, the Federal Home Loan Banks system, a general liquidity provider for banks, saw total debt outstanding rise to $1.249 trillion from $1.245 trillion in July.
The increase in borrowing by large banks indicates that they “are not comfortable letting reserves fall much further from current levels,” Citi strategists Shuo Li and Jason Williams say in a report. Between the turmoil in March and uncertainty surrounding the Basel III reforms, banks are motivated to hold more reserves than they may actually need, and lean more on the home loan banks.The Fed’s most recent survey of financial offers published in August showed that roughly 79% of respondents said their institutions preferred to hold additional reserves above the lowest comfortable level.
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