US Banks Lose $48.81 Billion in a Week; Surge in Money Market Fund Deposits Noted

Billions are leaving traditional banks, with money market funds seeing a significant increase in deposits.

The U.S. banking sector is witnessing a significant shift in deposit patterns. Recent data from the Federal Reserve Economic Data (FRED) system reveals that between August 10th and 16th, a staggering $48.81 billion was withdrawn from American bank accounts. This trend isn't isolated to just one week. Over the past year, deposits in U.S. banks have seen a decline of $740 billion, moving from $18.03 trillion to a current $17.29 trillion.

This exodus from traditional banking coincides with a surge in money market fund investments. These funds have recorded their highest inflows in the past six weeks. Investors, in their quest for consistent returns, are increasingly turning to these funds. A report from Reuters, citing data from Refinitiv Lipper, underscores this trend, noting that in just one week, investors funneled $32.29 billion into money market funds.

However, it's not all rosy across the board. Specific sectors, including healthcare, financials, metals & mining, and utilities, have recorded losses. These sectors saw outflows of $747 million, $579 million, $556 million, and $497 million, respectively.

The pivot towards money markets can be attributed to evolving economic forecasts. A growing consensus among analysts suggests a prolonged period of higher interest rates, rather than a swift shift by central banks. This sentiment is further echoed by economists at Goldman Sachs, who anticipate that the U.S. Federal Reserve might commence a reduction in its benchmark interest rate by the second quarter of the upcoming year. Contrary to some market speculations, these economists also project that the Fed will refrain from rate hikes in the upcoming months. They state, “The cuts in our forecast are driven by this desire to normalize the funds rate from a restrictive level once inflation is closer to target.”

In essence, the financial landscape is undergoing a transformation. As traditional bank deposits dwindle, money market funds are emerging as the preferred choice for many investors. This shift, influenced by economic forecasts and the quest for stable returns, underscores the dynamic nature of the financial market and the need for investors to stay informed and agile.

Aug 27, 2023