• Americans pulled a record-breaking $472 billion from their bank accounts in the first quarter of 2021.
• This is attributed to the failures of Signature Bank, Silicon Valley Bank and First Republic, which were triggered by the Federal Reserve’s aggressive interest rate hikes.
• Money market funds have seen massive weekly cash inflows as people diversify risk outside of traditional banking systems.
Americans Pull Record Amount Out Of US Banks
The Federal Deposit Insurance Corporation (FDIC) released a quarterly report showing that depositors took a total of $472 billion out of their accounts in the first quarter of 2021 – shattering a 39 year record. The primary driver for this deposit flight was due to uninsured deposits, as people looked for ways to protect capital that is above the standard FDIC insured maximum limit of $250,000.
Banking System Impacts
The banking system has been heavily impacted by this exodus from traditional banks, with assets held by money market mutual funds surging to an all-time high of $5.6 trillion according to Crane data at the end of Q1 2021. This pullout also follows the collapses of Signature Bank, Silicon Valley Bank and First Republic, all largely caused by the Federal Reserve’s aggressive interest rate hikes over recent years.
Money Market Funds Inflow
As depositors are leaving traditional banking systems, money market funds have experienced huge weekly cash inflows as individuals look for alternative ways to diversify risk outside of these conventional banking methods. At present, it appears that there are no signs that these trends will slow down anytime soon – meaning further large withdrawals could be expected in upcoming quarters.
Deposit Flight Drivers
Uninsured deposits were identified as one of the main drivers behind this trend due to peoples’ desire protect capital beyond what FDIC insurance covers up to ($250k). Insured deposits held by banks actually increased during this time period however, potentially due people looking for other forms security beyond normal banking channels such as money markets or other investment vehicles.
Conclusion
It remains unclear how long this deposit flight will last or if it will continue on its current trajectory into future quarters – although it would appear likely given current indicators and economic conditions moving forward into Q3 and Q4 2021 and beyond.
