News | 04.11.22
Bank Deposits Could Drop for First Time Since World War II
Analysts have been slashing expectations for bank deposits in recent weeks as U.S. Federal Reserve rate increases ripple through the industry, potentially ending a streak of increasing deposits that goes back to World War II. Citigroup estimated banks have $500 billion to $700 billion in excess noninterest-paying deposits that could move quickly, with the most likely beneficiaries being money market funds (MMFs). The funds have been parking cash at the Federal Reserve Bank of New York for short-term storage. That program, known as the reverse repo, has about $1.7 trillion in it now. Because it is so new, and suddenly so big, analysts have been unsure what will happen with those funds as the Fed started moving rates. For months, many viewed them as excess funds that would follow the general idea of “last in, first out.” Now, some expect MMFs to march their rates higher along with the Fed, which would keep them more attractive than bank deposits.
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