U.S. Banks Boost Cash Reserves by 11.0% Amid Tariff Uncertainty

In the first quarter of 2025, U.S. banks significantly bolstered their cash reserves, accumulating a substantial $88.66 billion in cash and equivalents. This surge in liquidity was primarily driven by the two largest U.S. lenders, which benefited from robust deposit growth, particularly from non-U.S. sources. The median change in cash and equivalents for these institutions skyrocketed to 11.0%, a dramatic increase from the 0.3% recorded in the fourth quarter of 2024. This shift in strategy was largely influenced by customers adopting a cautious approach due to the potential impact of tariffs.

Concurrently, loan growth during the same period was relatively stagnant, rising by less than one percent. Banks notably reduced their exposure to credit card, nonresidential construction, farm, and auto loans. This trend is anticipated to persist, as analysts have been revising down their net loan growth estimates for most of the largest U.S. public banks. There is no significant rise in loan growth projected for the remainder of the year.

The abrupt hoarding of assets by lenders reflects a strategic response to the current economic climate. The substantial increase in cash reserves indicates a preference for liquidity over lending, likely driven by uncertainty surrounding tariffs and other economic factors. This cautious approach is further evidenced by the reduction in various loan categories, suggesting that banks are prioritizing financial stability over aggressive lending strategies.

The decision by the largest U.S. lenders to bolster their cash reserves underscores the importance of deposit growth, particularly from non-U.S. sources. This influx of deposits has provided these institutions with the financial flexibility to navigate the current economic landscape. The median change in cash and equivalents highlights the significant shift in banking strategy, with a focus on maintaining liquidity in the face of potential economic headwinds.

The overall trend of reduced loan growth and increased cash reserves suggests a conservative approach by U.S. banks. This strategy is likely to continue, as analysts do not foresee a significant rise in loan growth for the remainder of the year. The cautious stance adopted by lenders reflects a broader economic uncertainty, with tariffs and other factors influencing customer behavior and banking strategies.