Deposits up and loans down - Is this a healthy bank environment?

C&I loans at banks are only 3% higher than before the pandemic and have fallen 20% from the peak levels in the second quarter of 2020. Banks are flush with deposits from Fed QE purchases, yet the money is not going to new loans. Banks can hold the excess reserves and get paid low rate, or they can hold longer-term Treasuries. They can also package loans and securitize them. Loans do not seem to be a high priority given the environment. 

The deposits at commercial banks have exploded and continue to grow. Deposits up and loans down; what does this tell us about bank lending health?

The commercial and industrial loans are likely a better indicator of smaller business that do not have access to capital markets. We have argued that we are in a supply-shocked environment, but these numbers suggest that business and banks do not see a bright future for profits and growth. Banks don't like the loan prospects and business are either not borrowing or getting the credit they need. This is a downside risk.