​ Will Brokerages Get Hurt By "​Bankerage" Cash Sweep, ABS Arbitrages? Until 2007, "​bankerage", or brokerages launching FDIC-​insured deposit programs, had been a hot trend in the money markets. However, the sharp climb in money fund yields -- the Federal funds target rate rose from a record low of 1% in mid-​2004 to 5.​25% -- has been taking market share back from these programs. Money market funds at 5% pay almost double FDIC-​insured sweeps, which average rates of 2.​65%. Now comes a potential disaster on the reinvestment side. While extremely profitable for a time, bankerages are now likely facing declining values in mortgage portfolios or major issues with baskets of asset-​backed securities. ABS with 2-​3 year maturities, which U.​S. money funds can'​t buy buy which European ones sometimes do, were often used to make a "​safe" spread on the reinvestment proceeds of investor sweep cash. See our upcoming September Money Fund Intelligence for more.

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