THE DEPOSIT EXODUS FROM BANKS

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by Joseph P. Farrell, Giza Death Star:

You will want to pay attention to this story shared by V.T., because it seems that depositors are abandoning American banks in unprecedented numbers:

Now, the reasons being given by this article are intriguing, and, I think, only a part of the story:

New numbers from the Federal Deposit Insurance Corporation (FDIC) show Americans are pulling their money at a pace not seen in yearly four decades.

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According to the FDIC’s newly-released 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 quarterly decline is the largest reduction reported in the QBP since data collection began in 1984.

 

 

This was the fourth consecutive quarter that the industry reported lower levels of total deposits.”

The “primary driver” of deposit flight came from uninsured deposits, says the FDIC, as people moved to protect capital that is above the $250,000 FDIC insured maximum.

Case in point – the amount of insured deposits held by banks actually increased during the quarter as people diversified their risk.

The mass exodus 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.

As depositors leave the banking system, money market funds have witnessed massive weekly cash inflows.

And that, pretty much, is the entire article and, as far as it is concerned, the entire story. Depositors with more money in a bank than the deposits are insured for are “managing risk exposure” and “diversifying portfolios” by putting money into money markets and so on. They’re abandoning the banking system for greener pastures, and all because of the failures of Silicon Valley Bank and First Republic.

But there’s a line in this article that has me wondering if there might not  be a hidden story here, one that the FDIC might not want told too loudly. Here’s the actually numbers being shown on the Federal Deposit Insurance website:

Quarterly Change in Deposits

You’ll note that there appears to have been a deposit flight for the last four quarters, with another large one setting off the flight of deposits last June. But how much of this is actually the “whales” pulling out their deposits, “diversifying” and “managing risk”? I suspect the Hodl article is correct, and that the “whale” activity constitutes the bulk of it, but not all of it.

It’s that possible other part of the story that concerns me. Indeed, I am supposing, on the basis of little evidence from the FDIC numbers that I’ve been able to find on such short notice, that there’s is “another story” at all, and that it is not being told. That story is the story of the small depositors, who, FDIC insurance or not, might be pulling their deposits out of banks, and particularly large regional or national banks, and putting them into more local, smaller institutions, like credit unions.

If indeed people are doing that – if they’re pulling their money out for an entirely different reason such as Catherine Fitts has said on more than one occasion, “Why would you bank with your enemy?” –  if indeed some people are waking up to the fact that Too Big to Jail Megabank is their enemy and they’re withdrawing their money for that reason, then it’s no wonder that there’s nary a peep about it from the FDIC or the policy wonks in Swampington. Time will tell, of course, if that wild idea has any traction. But if it is true for the small insured depositor, I can imagine that at least some of the “whales” might also have realized that Too Big to Jail Megabank is not their friend either.

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