Author: Ailin Li

The US banking industry "thundered" one after another, and three regional banks collapsed in seven days, and American depositors' confidence in the banking industry was shaken and began to withdraw money on a large scale.

Hundreds of billions of dollars in deposits lost in a week

On the 24th local time, the Federal Reserve released the latest data showing that in the week ending March 3, US banks lost nearly $15 billion in deposits, reaching $984.17 billion, and the total amount of deposits fell to just over $5.2021 trillion, a new low since September 9. During the period, total deposits in small banks fell by a record US$1190 billion to US$5.5 trillion, while large banks added US$670 billion to US$10.7 trillion.

JPMorgan analysts estimate that since last year, about $3 trillion has been removed from the "weakest" banks in the United States, and about half of the outflows of deposits occurred after the takeover of Silicon Valley banks in March this year. JPMorgan blamed the "big move" of depositors' money on three factors: the Fed's interest rate hikes, quantitative tightening, and about $7 trillion in uninsured deposits, and the bank believes that these flow trends are likely to continue.

In the past year, the total amount of deposits in the United States has been in a steady downward trend, and many economists of major banks recently told the first financial reporter that excess savings in the United States are not sustainable. Arend Kapteyn, head of global economic and strategy research at UBS, told reporters that the US savings rate is less than 1/2 of the pre-epidemic level, and the stock of excess savings is decreasing at a rate of 1 trillion yuan per year. Brian Coulton, chief economist at Fitch Ratings, also said that excess savings built up during the pandemic have been significantly reduced and are unlikely to continue to provide a buffer after the third quarter of this year.

The regional bank run crisis coupled with Credit Suisse's forced "low sell" is accelerating the flight of funds. Yan Meizhi, head of financial industry research at UBS Greater China, said in a report to First Financial Reporter that investors are generally worried about several points: "The first is the liquidity of the banking system; Second, how much will banks' forced sale of Ready for Sale (AFS) and Hold-to-Maturity (HTM) securities affect bank earnings, capital and liquidity; The third is whether the incident is contagious, whether it will affect other local banks in the United States, whether it will spread from the United States to Europe, and even spill over from banks to non-bank financial institutions such as investment and funds; Fourth, the deterioration of the technology, private equity, and venture capital industries could accelerate the recession. ”

U.S. authorities: The banking system is safe and sound

Still, policymakers have repeatedly reassured the public that the banking system is safe.

On the day the Fed released the data, U.S. Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and more than a dozen other officials held a special closed-door meeting of the Financial Stability Oversight Council (FSOC), and the statement read: "Participants discussed the current state of the banking industry and members believe that the U.S. banking system remains robust and resilient despite pressure on some institutions." The statement also noted that FSOC member institutions will remain committed to monitoring developments in the U.S. financial sector.

Just two days before the closed-door meeting, the Fed decided to raise interest rates for the ninth time, announcing a 22 basis point increase on the 25nd. Powell told a news conference that "when the economy or financial system is seriously threatened, we have the tools to protect depositors, and we are ready to use them." I believe that depositors should trust that their deposits are safe. He also said that deposit losses have stabilized after the Fed took strong action to support the banking system.

Yan believes that the authorities need to take the following measures to hopefully calm the market. "Central banks need to provide a lot of liquidity in case banks are forced to sell assets; Measures to stop deposit outflows and bank runs could be introduced, such as breaking the deposit insurance cap to provide full protection for depositors and providing more financial support to stabilize wealth management, capital markets and interbank markets; In addition, the Fed should be alert to recession risks and carefully consider interest rate decisions. ”

Where does the 100 billion go to the money?

Amid the turmoil in the banking sector, global investors are looking for safer havens. At a time when there was a large outflow of US bank deposits, the scale of inflows into US money market funds exceeded the 100 billion mark for two consecutive weeks, the first time since the epidemic.

According to the Investment Company Institute (ICI), about $15 billion flowed into U.S. money market funds in the week ended June 1200, the largest weekly net inflow since June 2020. In the week ended the 6nd, U.S. money market funds continued to record inflows of about $22.1174 billion, with total assets reaching an unprecedented $5.1 trillion.

Sean Collins, the agency's chief economist, said: "Investors have flocked to U.S. money market funds over the past few weeks, apparently looking for alternatives to some banks. ”