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Banking blues

US Banks keep losing deposits. Over the last 5 quarters, banks a have had deposit outflows thanks to their inability to compete with high short term rates in the treasury market or money market funds. But what started as a financial decision, has morphed into a trust issue; depositants do not believe banks are healthy enough to hold their liquidity, particularly those deposits that are not insured. As a consequence, banks have covered that hole by borrowing the maximum amount so far from the Bank Term Funding Program (BTFP), $108Bn (Blue line on the chart below, inverted scale).They’re paying 5.5% to the Fed on these deposits, which is probably the highest rate in the short term market for high quality deposits. The #btfp matures on March 2024, 6 months from now, and banks have experienced some relief from the market (red line below), but the liquidity/solvency problem has not been solved. Add some #cre problems and a dried up mortgage market, and the banking business model is weakening.

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