• Americans have pulled $472 billion out of US banks in the first quarter of this year, setting a 39-year record.
• This outflow is primarily from uninsured deposits as people seek to protect their capital.
• Money market funds have seen an influx of cash as depositors move away from traditional banking systems.
Record Depositor Outflows
Americans are pulling their money out of US banks at a pace not seen in four decades. According to the Federal Deposit Insurance Corporation’s (FDIC) quarterly report, depositors took a total of $472 billion out of their accounts in the first quarter of this year – shattering a 39-year record. The FDIC identifies that the “primary driver” behind this massive withdrawal is uninsured deposits as people seek to protect capital above the $250,000 FDIC insured maximum.
Money Market Funds See Inflow
As depositors leave traditional banking systems, money market funds have witnessed huge weekly cash inflows. Assets held by money market mutual funds surged to $5.6 trillion according to Crane data – representing a record high.
Interest Rate Hikes Trigger Bank Failures
The deposit flight follows the failures of Signature Bank, Silicon Valley Bank and First Republic, which were triggered in large part by the Federal Reserve’s aggressive interest rate hikes.
FDIC Insured Deposits Increase
Interestingly enough, while overall deposit levels decline, FDIC insured deposits actually increased during the quarter as people diversified risk across different financial institutions with varying insurance limits and requirements.
In conclusion, it appears that Americans are looking for higher yields outside traditional banking systems and many are opting for lower risk investments such as money market funds with FDIC insurance protection up to certain limits.