Mohacsy's Safe Portfolio Member Forum

[jbsliverer]

There was an interesting conversation over at Biancore Research a few days ago about the money flowing out of the banks and into T bills and CD's with the 4% level being the public sentiment kicking in gear. Practically everyone I know, family, friends, acquaintances was moving their money into these things about that time. I've always had some, but when they went over 4% I got really heavy weighted and have been adding. Just got some more short term CD's for 5.2, 5.3%. Sure the CDs tie up the money a little bit more than Tbills, but you're talking pretty short time here. And everyday I see several articles that are pumping these options. If there is anyone that hasn't got cash transferred over, they will be getting in the trend, so I don't think we've seen the end to these banking problems.

Brick and mortar and these smaller regional banks are really between a boulder and cement slab with the competition for the interest rates paid out. Even if the gap gets closed a bit, they still would have to compete with the online banks like Ally and Marcus where my savings accounts are getting 3.75% for just holding some cash. Probably other online banks also.


https://twitter.com/biancoresearch

1/n

This chart comes from the Fed H8 report. It is current through the latest data, March 8 ... two days before Silicon Valley Bank failed.

What has been the largest drawdown of deposits since the financial crisis?

The weeks BEFORE the bank failures of the last few weeks. pic.twitter.com/2uZ9H5knZl

— Jim Bianco (@biancoresearch) March 21, 2023

Jim Bianco biancoresearch.eth
@biancoresearch
2/n

And, as the bottom panel shows, the deposit outflows were accelerating in the weeks before these failures.

3/n

So why was their a big deposit flight out of banks before the failures?

As rates went from 0% to 4% between March and November 2022, inflows into money market mutual funds were a paltry $62 billion.
This changed when rates crossed above 4%. $143 billion flowed into money… pic.twitter.com/gsXbrEJwo5

— Jim Bianco (@biancoresearch) March 21, 2023

Jim Bianco biancoresearch.eth
@biancoresearch
4/4

So, if the Fed hikes tomorrow, they WIDEN this spread even further. And the yield-seekers will have even more incentive to leave. The banks will bleed, and bleed, and bleed deposits.

Why should the yield-seekers stop moving their money?

The already downloaded the app, they reset their password, they figured out how to move money. They are not going to unlearned it.

The only thing that stops the constant bleed is to close the saving rate to market rate gap. With the Fed hiking tomorrow, the only way to close this is for banks to hike deposit rates. But that kills profitability.

----

Why does it matter if the regional banks bleed deposits?

Goldman
Small, Medium Banks Account For
50% Of C&I Lending
45% Of Consumer Lending
80% Of All Commercial Real Estate Lending

If regional banks keep bleeding deposits, even it is slow enough that they don't fail, it will lead to a credit contraction for these sectors. That will hurt.

This is a liquidity crisis (everyone wants their money), not a solvency crisis (banks lost money).

But the scars are so deep from 2008 that we must change this to a solvency crisis .. via the lack of duration hedging. This is not the problem!

The problem is the record bleed out of deposits and mobile banking making the velocity of deposits much higher than any previously imagined.

The risk is a credit contraction.

The solution is to close the savings rate/market rate spread to remove the incentive to leave.



chris helman
@chrishelman
·
Mar 21
Replying to
@biancoresearch
Can the banks not afford to pay higher rates on deposits in order to slow the bleeding? Why?
Jim Bianco biancoresearch.eth
@biancoresearch
·
Mar 21
Replying to
@chrishelman
Don't raise savings rates, bleed deposits.

Raise savings rates kill profitability.

Cut the funds rate, risk inflation.


More on the conversation......;