Bank Deposits Dropping

There well can be stress starting in Sept or Oct.

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So, deposits are now flowing back into the regional banks that are now offering higher rates than the money center banks. This sounds like good news for the regionals.

DB2

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I’ve had a few CDs come up for renewal and have spent some time shopping rates over the last two months. The behavior in the article matches what one would expect from looking at available rates. In general, from May through June, 12-15 month interest rates seemed to be the highest with rates that peaked around 5.0% earlier and now around 5.3% after the last two Fed rate hikes. Terms shorter and longer than that were lower, around 4.3 to 4.8%. But as the story noted, smaller banks seem to be having to pay higher rates to attract deposits. Generally, the more obscure the bank name, the closer to the top of the yield curve offered rates tended to be. Certainly if you walked into the lobby of a top 20 bank to purchase a CD, offered rates tended to be MUCH lower than you could shop for online.

My advice… If you have ANY money tied up in CDs, stop buying CDs at local mega banks in person and transfer the money to your brokerage account and use its fixed income trading tool to shop for CDs online across the entire country. It takes less time to confirm renewals or change banks at renewal time and it is VASTLY easier to find better rates. If you’re trying to AVOID big banks and brokerages, I applaud that but remember that for CDs, for the term of the CD, your money truly IS on the books of that CD bank, not your brokerage or megabank that might provide fixed income trading. You ARE helping by pushing that money into smaller banks.

Of course, the cynic in me assumes that the big banks aren’t too worried about this. They are very aware of their TBTF sainthood. They probably figure, “hey, if the economy tanks again, those small banks will be TFTF (The First To Fail) and those deposits will come right back to papa.”

WTH

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Yes DB2 but there is more to it if the big banks go under stress in the next couple of months.

Given the performance of the big banks on multiple stress tests I don’t think there is concern for them in the near future.

DB2

Sadly, this is the state of American big business of any kind. The big businesses don’t care about providing services/products, they care about profits and executive compensation.
The smaller businesses (not small business per se) compete by providing better service, but if they become too successful, they get bought up by the big ones.
And the quality of life in our country goes down a little bit every time.
Too big to fail is just a bad concept. Correcting it probably requires limiting corporate size and nationalizing the failures and then breaking them up before returning them to public entities.

Many banks are losing FDIC savings balances to FDIC money market balances.

MMFunds have grown in balances to $5.6 trillion, and growing.

Note, bank savings deposits are a liability, MMFunds are an asset.

Additionally, as your linked article states:

The reason for the reversal in the second quarter is that regional banks now need deposits more than the giants,

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Weren’t those tests administered because three banks failed earlier this year?

All the tools, the loans, the options and the swaps are intermingled. It is a house of cards.

The small guys in the banking and RE industries go and the big ones will be left holding the bag. That wont end very pretty.

No, they have been done every year since 2009 for the 20+ largest banks in the US.
https://www.cnn.com/2023/06/28/business/fed-stress-test-preview/index.html
All 23 banks required to take the Fed’s exam fared better this year compared to last year, despite being subjected to a worst-case scenario that was even more painful than last year’s.

DB2

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