Bank loans have been shrinking since the first quarter of 2009, and holdings of debt securities have filled some of the hole.

But the shift to bonds has been modest (see charts) as balance sheets overall have contracted, and cash levels — specifically reserves, which can only be held by depositories and some other entities like the government-sponsored enterprises — have soared, primarily as a byproduct of the Federal Reserve's emergency programs.

At the end of the third quarter of 2007 — the last full period before the official start of the recession — debt securities accounted for 19.6% of assets at bank holding companies, banks and savings institutions, according to data from the Fed — within the range of 19% to 21.7% that prevailed earlier in the decade.

At the end of 2008, when loans peaked, the figure had fallen to 17.7%, and it has since rebounded to 18.1% at March 31. (New accounting rules that forced the consolidation of securitizations swelled loans by about $400 billion in the first quarter and lowered the portion of assets consisting of securities by perhaps 0.4 percentage point.)

Meanwhile, the portion of assets made up of loans fell 8.7 percentage points from the third quarter of 2007 to 47.5% in the first quarter of this year.

Cash, boosted by injections of reserves first as a part of the central bank's rescue liquidity facilities and later primarily because of massive purchases of mortgage bonds under its credit easing program, increased 6.3 points to 7%.

(In August, the Fed announced that it would reinvest funds from holdings of maturing mortgage bonds and agency debt in Treasuries. The decision to essentially adopt a target for the size of central bank's balance sheet, motivated by a desire to avoid a "passive" tightening of monetary policy amid a weak economy, will keep reserves at their elevated level.) Mortgage bonds with government backing, which have higher yields than Treasuries, have historically made up most of bank securities portfolios.

With the dramatic increase in government borrowing, banks' position in the Treasuries market has remained relatively small — the industry held 2.2% of federal debt in the first quarter — despite growing 170% from the end of 2008, to $259 billion at March 31. (By comparison, households increased their direct holdings of Treasuries 186%, to $796 billion during the same time.)

Banks have always had a big presence in the markets for agency mortgage bonds and agency debt, and after falling for a couple years through the middle of the recession, the share of the industry's holdings of such securities climbed 2.6 points from the end of 2008 to 19% in the first quarter of this year.

But, of course, the Fed has been the major new force in the space, with its holdings reaching 15.9% of outstanding bonds at March 31 (and supplying the mass that is refracted in the cash on bank ledgers).

More recent Fed data for commercial banks (second-quarter data covering the broader industry will be published this month) indicates that the percentage of industry assets in debt securities has continued to drift up — to 20.5% for institutions with domestic charters in mid-August.

But while loans have been shrinking, banks are still fundamentally in the loan business.

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