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Deposits, lending tick up for third straight week: Fed -- Deposits and lending activity at commercial U.S. banks increased for the third-straight week in the week ended May 31, the latest data from the Fed showed, as the recovery from the fallout of the banking turmoil seen in the spring continues.

Deposits at large U.S. banks rose $46.6 billion to $17.238 trillion from a week earlier, on a seasonally adjusted basis.

Commercial bank lending increased $4.6B to a seasonally adjusted $12.139 trillion during the week.

Residential lending increased $0.6B, commercial real estate loans climbed $3.7B, while consumer loans were down $2.1B from the prior week. Commercial and industrial loans were up about $0.6B from a week ago on a seasonally adjusted basis.

The ongoing improvement in lending activity, which has now stretched to a third week, has stoked optimism that stress in the banking sector - from the collapse of several banks including Silicon Valley Bank - will likely be less than feared.

"We have now learned enough about the banking stress to be fairly confident that it will not deliver a recessionary blow," Goldman Sachs said in a note.

Lending standards have tightened "only modestly further since the bank failures," Goldman Sacsh adds, and growth in lending volumes "has declined only moderately so far too."

The Federal Reserve is closely watching the impact on the economy from the banking turmoil and has suggested that tighter lending standards could help rein in economic growth and inflation, lessening the need for aggressive monetary policy tightening.

With just days ago until the Fed kicks off its two-day meeting on Tuesday, investors continue to bet that the central bank will keep rates steady in June, though may resume hikes in July.

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