US Banks See Massive Deposit Flight (Biggest Since SVB) As Fed Ends BTFP ‘Arb’


After two weeks of outflows, money market funds saw $42BN of inflows last week, sending the total assets above $6TN for the first time ever..

Source: Bloomberg

Not exactly a bullish sign for stocks as investors are choosing super safe money markets, where six-month bills yield about 5.17%, as the Fed sticks to its higher-for-longer policy.

In a breakdown for the week to Jan. 31, government funds – which invest primarily in securities like Treasury bills, repurchase agreements and agency debt – saw assets rise to $4.89 trillion, a $31.6 billion increase. 

Prime funds, which tend to invest in higher-risk assets such as commercial paper, meanwhile, saw assets rise to $994 billion, a $7.32 billion increase.

Institutional funds saw a large $33BN inflow and retail funds saw yet another inflow…

Source: Bloomberg

After a small expansion in the prior week, The Fed’s balance sheet contracted by $47.2BN last week…

Source: Bloomberg

And for the first time since May of last year, usage of The Fed’s BTFP facility dropped (by $2.5BN to still $165BN), after The Fed crushed the arb and vowed to end it on time in March…

Source: Bloomberg

The Reverse Repo facility saw more liquidity drawn down, testing down to $500BN left…

Source: Bloomberg

US equity market cap remains decoupled from the shrinking reserves at The Fed once again…

Source: Bloomberg

The timing of the end of the arb, the imminent end of BTFP, and the rapid approach of zero liquidity left in the RRP all line up for a March D-Day for the banks.

Talking of which, on a non-seaonally-adjusted basis, total deposits plunged by a stunning $168BN last week – the biggest weekly drop since the SVB crisis…

Source: Bloomberg

Seasonally-adjusted total deposits also decline, by $28BN…

Source: Bloomberg

And, excluding foreign deposits, The Fed managed to turn a giant domestic deposit flight of $160BN NSA (Large banks -$141BN, Small banks -$19BN) into a tiny domestic deposit decline of $458MN only (Large banks -$16BN, Small banks +$15.5BN)…

Source: Bloomberg

On the other side of the ledger, loan volumes rose byjust over $10BN with Small banks adding $10.5BN while large banks saw loan volumes drop $238MN…

Source: Bloomberg

And finally, as is now finally becoming evident in the share prices, the regional bank crisis is back (it never left) as evidenced by the red line below (without The Fed’s BTFP facility there is a major hole) and big banks have money to burn (green line) with help from the FDIC…

Source: Bloomberg

So, when will Powell be forced to admit a March rate-cut is back on the table? Or QE?

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