Surge in Money-Market Fund Assets and Small Bank Deposits to Record Highs Amid Stock Market Boom

Money-Market Funds See Inflows for the Third Consecutive Week

For the third consecutive week, and the ninth in the last ten, money-market funds experienced inflows of $11.3 billion. This surge pushed the total assets under management (AUM) to a record high of $6.474 trillion, even as stocks soared to new record highs.

US Banks Witness Rise in Total Bank Deposits

Simultaneously, US banks saw total bank deposits (seasonally adjusted) rise by $53.2 billion, a figure well above pre-SVB levels. This marks the third week in a row that bank deposits have increased.

Deposits Soar on a Non-Seasonally-Adjusted Basis

On a non-seasonally-adjusted basis, deposits skyrocketed by a staggering $123.9 billion, reaching the highest level since January 2023, prior to the SVB crisis.

Domestic US Banks See Massive Deposit Inflow

Excluding foreign deposits, domestic US banks experienced a massive deposit inflow of $99.2 billion (seasonally adjusted) in the week ending October 2nd. This represents the largest weekly deposits inflow since May 2021. On a non-seasonally-adjusted basis, domestic deposits rose by $178 billion.

Record High for Small Bank Deposits

Large banks received $55.5 billion of inflows (seasonally adjusted) and/or $123.3 billion inflows (non-seasonally adjusted). Small banks, on the other hand, saw $43.7 billion of deposit inflows and/or $54.7 billion inflows (non-seasonally adjusted). This surge resulted in a new record high for small bank deposits.

Changes in Loan Volumes for Large and Small Banks

In contrast to the surge in deposits, large banks saw their loan volumes shrink by $1.9 billion. Conversely, small banks witnessed their loan volumes rise by $4.3 billion.

Unwinding of Loans from The Fed's Bank Bailout Facility

Banks are currently unwinding their loans from The Fed's bank bailout facility, as the facility is now closed.

Bank Reserves at The Fed

Bank reserves at The Fed saw a modest uptick last week but remain significantly decoupled from their historically tight relationship with US equity market capitalization.

Underlying Issues in the Financial System

Despite the surface-level boom in bank stocks, there appears to be a serious underlying issue within the financial system's infrastructure.

Bottom Line

The financial landscape is witnessing a unique scenario with record highs in money-market fund assets and small bank deposits, even as stocks continue to soar. Simultaneously, there are underlying issues in the financial system that warrant closer attention. What are your thoughts on these developments? Do you think this trend will continue? Share this article with your friends and discuss. Remember, you can sign up for the Daily Briefing, which is delivered every day at 6pm.