11 THE NAFCU JOURNAL January–February 2023 References 1. NAFCU, 2022 Report on Credit Unions, accessible at https://www.nafcu.org/data-tools/nafcu-report-credit-unions. 2. Castro, Andrew, Michele Cavallo, and Rebecca Zarutskie (2022). “Understanding Bank Deposit Growth during the COVID-19 Pandemic,” FEDS Notes. Washington: Board of Governors of the Federal Reserve System, June 06, 2022, https://doi.org/10.17016/2380-7172.3133. 3. Financial Accounts of the United States, Board of Governors of the Federal Reserve System, accessed November 22, 2022, at: https://www. federalreserve.gov/releases/z1/. 4. Aladangady, Aditya, David Cho, Laura Feiveson, and Eugenio Pinto (2022). “Excess Savings during the COVID-19 Pandemic,” FEDS Notes. Washington: Board of Governors of the Federal Reserve System, October 21, 2022, https://doi.org/10.17016/2380-7172.3223. A review of these factors shows the breadth of economic forces driving the rise in deposits early in the pandemic. Households, businesses and the Federal Reserve each had a part to play. However, each sector is now contributing to the reversal. The Fed’s balance sheet reduction is well underway. Commercial and industrial loans were down over 8% from their peak as of October. And fiscal support for households is ebbing as they resume pre-COVID spending patterns. A study from October 2022 focuses on household saving behavior and attempts to estimate the accumulation of excess savings over the course of the pandemic.4 While numerous such efforts have been attempted, the Federal Reserve economists’ approach is novel in that it disaggregates savings by income quartile and identifies the factors behind the savings growth. As of mid-2022, the researchers estimated that each income quartile still had positive excess savings, but that they were receding quickly. Not surprisingly, for low-income households this was primarily due to curtailment of fiscal support. High-income households tended to cut expenditures early in the pandemic but have since ceased to do so, resulting in the erosion of their excess savings. One notable element that has dampened growth in disposable income (and, by extension, savings), has been a sharp increase in taxes. Based on the authors’ calculations, tax payments in the four quarters ending June 2022 were over $600 million above the pre-COVID trend. This points to another possible explanation for the ebbing of deposits at a system-wide level. If fiscal stimulus created rapid deposit growth, higher taxes coupled with reduced government spending may be playing a large part in leeching deposits from the economy. More insights from the NAFCU Research Team can be found on the NAFCU website at www.nafcu.org/data-tools.
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