I’m supposed to say something meaningful about an unprecedented decline in US bank deposits.
The problem is, I already have. There are only so many ways to tell the same story, and I’ve told this one over and over again.
It’s the furthest thing from complicated. Deposits surged amid the COVID stimulus push, then they started to fall sharply, exacerbated this year by the regional banking crisis which woke depositors up to the fact that although small bank deposits are ultimately insured, it’s annoying when there’s a run on your bank, and because the insurance is just a US government guarantee, you’re just as safe in US government money market funds, where yields are higher.
The simple figure shows YTD money market fund inflows for 2023. That’s a veritable cash magnet. Note the acceleration evident around March, when SVB failed.
This has been topical all year, but it was back in the news on Wednesday thanks to an S&P analysis of newly-published FDIC data from an annual survey. “Total deposits across US banks fell on a YoY basis at June 30 for the first time on record,” the analysis said, putting the drop at nearly 5%, or around $870 billion.
“The drop was the first in a data set that dates back to 1994,” the report went on, adding that nearly a third of the drop was attributable to JPMorgan, BofA, Wells and Citi. Schwab saw the largest percentage drop with deposits plunging more than 31% (there’s probably some internal switching there, with clients simply putting money into money market funds).
Of course, we already knew this. As the chart above shows, deposits were falling on a YoY basis starting in Q4 of 2022. We’ve probably seen the worst of the 12-month declines already.
I hate to suggest this isn’t news but… well, it isn’t news.
It’s notable, though. Just as it was every other time I mentioned it.
Aren’t any of these pundits students of actual history? In your previous column some genius pointed out that 7%+ mortgage rates were the highest in history. I guess his history started in 2011. How old is this guy, 12? Here history seems to have started in 1994. Fifty years of my life had passed by this startling historical benchmark. I had three 8.5%+ mortgages before that starting date. Context is important. I got my first bank account in 1956. As a proportion of total individual savings, banks started losing their battle with insurance, pension funds, investment funds and other types of savings decades before the 1990s. Context is important. For me, at least, even 1994 is a big historical so what for me. People seem to have lost perspective. In my lifetime as an investor stocks have gone through two periods of dead money starting in 1966. The two together involved 37 years with no return on the major indices.
Your first couple of sentences here are inaccurate. The “geniuses” you’re referring to are the Mortgage Bankers Association. I can assure you that they are aware of the history of US mortgage rates. That’s kinda the only thing they do. If you read the article, the MBA didn’t say (nor did I say) that 7.34% was a record high. What they (and I) said, was that it was a record high for jumbo mortgages in data back to 2011.
It’s the same thing in this article. The chart clearly shows that it’s not the first decline in history (although it is the largest) and the article clearly says that the FDIC survey only goes back to 1994.
So, you’re kinda tilting at windmills here.