Reuters: Money Funds Drain Deposits
Reuters posted, "Column: Shadow bank boxing as money funds drain deposits." The piece states, "Cash-like money funds could increasingly suck deposits from smaller U.S. banks until lagging bank savings rates are finally forced up to compete while the Federal Reserve keeps rates high for the rest of the year. Part of the so-called 'shadow bank' complex of non-bank financial institutions, money market funds invest largely in Treasury bills and securities yielding more than 4% for the first time in 15 years and are now far outshining what many banks are offering on deposit. A migration towards them is only peculiar in how long it took to happen." Reuters tells us, "The latest dash to these cash funds is likely a mix of unnerved depositors and institutional money fearful of the fallout for riskier assets more generally -- but the scale of the movement in recent weeks is eye-popping. According to mutual fund data, U.S. money fund assets under management soared by about $312 billion in the month through last week and hit a record $5.132 trillion. Outside the historic cash scramble surrounding the pandemic in 2020, that was the biggest annualised monthly move to these investment bunkers since the bank crash unfolded in 2007." The article adds, "Savings deposit rates vary across the system between the near-zero rates at large banks still awash with deposits to slightly higher rates at small- and mid-sized banks now struggling to retain savings. But, in contrast to money funds, the average rate across all of them, according to the Federal Deposit Insurance Corporation, is still just 0.37%. 'If the Fed is forced to hold rates higher for longer than the market is pricing, pressure on net interest margins will likely continue as banks have to keep paying up to retain deposits," William Blair Investment Management told clients. 'The expansion in net interest margins that regional banks have enjoyed over the last several years is likely not to continue.'"
