As discussed previously (see post), U.S. commercial banks have been scaling back on their loan portfolio growth. Banks have been even more aggressive however in reducing growth of their securities holdings. The year-over-year growth is at the lowest level since the financial crisis. The reasons vary. In some cases it was simply about trimming treasuries and MBS holdings as rates rose sharply this summer. In other cases, such as with corporate bonds, it is due to the various regulatory pressures, e.g. the Volcker Rule.
And while banks are cutting their securities inventory, the Fed keeps buying. Recently the Fed's holdings of securities (mostly treasuries and MBS) materially exceeded that of all US banks combined. Prior to the financial crisis, banks owned 2.5 times the amount of securities held by the Fed. The chart below puts it in perspective. Before the securities buying program is over however, the differential is expected to widen even further.