Federal Reserve Q1 2025 Z.1 “flow of funds” report.
Non-Financial Debt expanded at a 2.82% rate during Q1, down from Q4’s 4.46% and Q1 ‘24’s 4.57%. Most of the decline is explained by an anomalous drop in federal borrowings to 1.95% from Q4’s 8.41% and Q1 ‘24’s 6.20%. But Household debt growth slowed to 1.85% from Q4’s 3.34% (Q1 ’24’s 3.01%). Corporate debt growth accelerated to 6.30% from negative 0.55% (Q1’s ‘23’s 5.18%).
Domestic Financial Sector debt growth surged to 6.08% from 0.67% (1.91%). Even more interesting, Rest of World (ROW) borrowings surged to 12.22% from 6.12% (4.52%).
In seasonally-adjusted and annualized (SAAR) dollars, NFD expanded $2.162 TN during the quarter, down from $3.404 TN – for the second weakest quarterly growth since pre-pandemic. Meanwhile, Financial Sector debt expanded SAAR $1.230 TN, up from $134 billion (Q1 ’24’s $376bn). For perspective, over the past 17 years, annual Financial Sector debt growth exceeded $1.0 TN only once (2023’s $1.60 TN).
Recall that “risk off” was gathering momentum into the end of Q1, with a serious bout of deleveraging erupting during the first week of April. CDS prices (investment-grade, junk, bank) ended March at the highs since early-August market instability.
Broker/Dealer Assets expanded (nominal) $490 billion, or 37.2% annualized, during Q1 to $5.759 TN. This was the strongest quarterly growth since Q1 2007 – to the highest level since Q3 2008. One-year growth was boosted to $614 billion, or 11.9%, the strongest annual expansion since 2007 ($619bn).
For Q1, Broker/Dealer Repo Assets surged a quarterly record $240 billion, or 56.8% annualized, surpassing (banking crisis) Q1 2023’s $199 billion - to a record $1.930 TN. Over 10 quarters, Repo Assets have ballooned $600 billion, or 45%. For some perspective, Repo Assets jumped $303 billion, or 21%, over 10 quarters for a September 2008 cycle peak of $1.778 TN.
Broker/Dealer Loan Assets increased $11 billion, or 5.6% annualized, to a 10-quarter high of $764 billion (1-yr growth $75bn, or 10.9%). Loans were up $334 billion, or 78%, over 21 quarters. Debt Securities holdings surged $145 billion, or 56% annualized, surpassing Q1 2008’s $1.111 TN to a record $1.174 TN (1-yr $233bn, or 24.7%). Debt Securities were up $523 billion, or 82%, over 21 quarters.
Broker/Dealer Agency Securities holdings ballooned $105 billion (91% ann.) during Q1 and an unprecedented $407 billion (255%) over one year – to a record $566 billion. Prior to 2024 ($340bn), 2008’s $100 billion increase in Agency holdings held the annual record. Treasury holdings gained $33 billion (29% ann.) during Q1 and $97 billion (25%) y-o-y to a record $488 billion. Treasury holdings ballooned $260 billion, or 114%, over 21 quarters. Miscellaneous Assets expanded $88 billion, or 23% annualized, during Q1 to $1.616 TN. Misc. Assets surged $381 billion, or 31%, over 21 quarters.
So how did Wall Street finance this remarkable balance sheet expansion? Repo Liabilities ballooned $361 billion, or 61.8% annualized, during Q1 to $2.697 TN – the high since Q3 2008. Repo Liabilities inflated $1.083 TN, or 67%, over 10 quarters. For comparison, Broker/Dealer Repo Liabilities expanded $989 billion, or 46%, over 10 quarters to a Q3 2007 cycle peak of $3.132 TN.
Sticking with Repos, total system Repo Assets surged (second only to Q1 ‘23’s $724bn) $717 billion, or 41% annualized, to a record $7.779 TN. One-year growth of $1.074 TN compares to peak mortgage finance Bubble 2007’s $655 billion (to $4.541 TN). Repo Assets ballooned $2.965 TN, or 62%, over 21 quarters. ROW Repo Assets surged $141 billion during Q1 to a record $1.480 TN. ROW Repo holdings were up $350 billion, or 31%, over 10 quarters
Money Market Funds (MMF) are the largest holder of Repos. MMF Assets rose $155 billion, or 8.5%, during Q1 to a record $7.398 TN – with incredible one-year growth of $957 billion, or 14.9%. MMF Assets ballooned $2.314 TN (46%) over 10 quarters and an astounding $3.395 TN, or 85%, over 21 quarters – for one of history’s great monetary inflations. MMF Repo holdings surged $201 billion, or 31% annualized, during Q1 to $2.821 TN – with one-year growth of $440 billion, or 19%, and 21-quarter ballooning of $1.579 TN, or 127%. MMF Treasury holdings declined $114 billion during Q1 to $2.881 TN, though holdings were up $1.624 TN, or 129%, over 10 quarters.
The banking system (“Depository Institutions”) is certainly part of the booming financial sector. Bank Assets jumped $581 billion, or 8.4% annualized, during Q1 to a record $28.388 TN – the largest quarterly growth since Q4 2021 ($702bn). Bank Assets ballooned $6.988 TN, or 33%, over 21 quarters.
For Q1, Loans increased (a measly) $52 billion, or 1.4%, to a record $14.926 TN, with one-year growth of $479 billion (3.3%). At $18 billion, or 1.0% annualized, Mortgages grew at the slowest pace in two years, with Consumer Credit contracting $65 billion. Meanwhile, Repo Assets surged $84 billion, or 48% annualized, (strongest since Q4 ‘18) to a record $782 billion – with one-year growth of $147 billion, or 23%. Bank Debt Securities holdings jumped $172 billion, or 11.2% annualized, to $6.342 TN. Debt Securities ballooned $1.660 TN, or 35.4%, over 21 quarters. Agency Securities holdings jumped $91 billion, or 11.9% annualized, with Corporate Bonds up $71 billion, or 31.9% annualized.
The Wall Street securitization machine still runs hot. Debt Securities expanded $805 billion during Q1 to a record $62.655 TN – with one-year growth of $2.632 TN. Over 23 quarters, Debt Securities ballooned $19.625 TN, or 45.6%. With stocks posting Q1 losses, Equities Securities declined $3.655 TN to $90.522 TN, though Equities were still up $39.754 TN, or 78%, over 23 quarters. Total (Debt and Equities) Securities ended Q1 at $153.176 TN, or 511% of GDP. This compares to cycle peaks 375% (Q3 ’07) and 357% (Q1 2000).
Throughout the mortgage finance Bubble, I highlighted the quarterly ballooning of Wall Street “Funding Corps” – name since changed to “Other Financial Business” (“Includes funding subsidiaries, custodial accounts for reinvested collateral of securities lending operations…). From Q2 2004 to peak Q4 2008, Funding Corps inflated 50% to $1.504 TN – before post-Bubble contraction shrank assets to $450 billion to end 2011. Well, they’re back. Other Financial Business assets surged $136 billion, or 46% annualized, during Q1 to $1.327 TN – the high since Q4 2008. Assets ballooned $210 billion y-o-y, or 18.8%, and $694 billion, or 110%, over 21 quarters.
Money Market Funds ($530bn) and Debt Securities ($384bn) are the largest Other Financial Business holdings, with Securities Lending ($793bn) the largest liability. Interestingly, Open Market (“Commercial”) Paper was the fastest growing individual holding, expanding an unprecedented $69 billion (184% ann.) to a record $219 billion.
Curiously, the category Open Market Paper expanded $140 billion, or 46% annualized, during the quarter to (high since Q1 ’09) $1.355 TN – with 21 quarter growth of $317 billion, or 31%. Brings back memories of the $479 billion, or 37%, ballooning over 13 quarters to a Q4 2007 peak of $1.789 TN. But I digress…
Declining stocks took a nick out of the grossly inflated Household Balance Sheet. With Assets dipping $1.657 TN to $190.083 TN and Liabilities slipping $62 billion to $20.776 TN, Household Net Worth declined $1.595 TN to $169.307 TN. Still, Net Worth was up $6.123 TN y-o-y, $16.819 TN over three years, and $58.304 TN, or 53%, over 20 quarters. Net Worth ended the quarter at 565% of GDP, compared to previous cycle peaks 488% (Q1 ’07) and 444% (Q1 2000).
Combined Household Equities and Mutual Funds slipped $1.801 TN during Q1 to $49.948 TN, while Real Estate dipped $227 billion to $51.987 TN. Household “money” holdings continue their historic inflation. Total bank Deposits jumped $259 billion to a record $14.760 TN, with Money Market Deposits rising $119 billion to a record $4.837 TN. Meanwhile, Treasury holdings jumped $132 billion to $2.859 TN, while Agency Securities dropped $86 billion to $1.018 TN. Total Household Holdings of Deposits, Money Market Funds, Treasuries, and Agencies rose $423 billion during the quarter to a record $23.474 TN, with one-year growth of $423 billion and 20-quarter growth of an incredible $6.314 TN, or 37%.
Rest of World holdings of U.S. financial assets slipped $475 billion during Q1 to $56.432 TN, though the quarter’s weaker stock market (total equities down $716bn) was entirely to blame. Meanwhile, Debt Securities holdings jumped a notable $635 billion (17.5% ann.) to a record $15.177 TN, with one-year growth of $1.188 TN, or 8.5%. Treasuries surged $500 billion during the quarter to a record $9.013 TN.