Concerns Over Bankdemic... 370 Trillion Won 'Money Move' to MMF

$286 Billion Inflows into MMF Over Two Weeks
Largest Capital Inflow Since COVID-19
Bank Deposits Decrease by $100 Billion

The collapse of Silicon Valley Bank (SVB) has sparked concerns of a bankdemic, leading to a money move as deposits previously held in small and medium-sized banks are being transferred to money market funds (MMFs).

On the 26th (local time), major foreign media outlets cited data from fund tracker EPFR, reporting that since SVB's bankruptcy on the 10th, $286 billion (370.942 trillion KRW) has flowed into MMFs over two weeks. This is the largest monthly inflow recorded since the COVID-19 pandemic.

With such a massive amount flowing in, the total assets of MMFs have surpassed an all-time high of $5.1 trillion, according to Bank of America (BofA).

Silicon Valley Bank
[Image source=Reuters Yonhap News]

By financial institution, the largest U.S. bank JP Morgan saw about $46 billion inflow, while asset management firm Fidelity Investments received $37 billion.

MMFs are a type of mutual fund that invests in low-risk securities. They typically consist of easily tradable, low-risk assets such as short-term U.S. government debt and have boasted high yields since the Federal Reserve (Fed) began raising benchmark interest rates in earnest.

The recent acceleration of funds flowing into MMFs is attributed to the spread of SVB's bankruptcy impact to global financial markets, increasing depositors' distrust in the banking system. With the Fed's rate hikes prompting consumers to move funds to higher-yielding MMFs, the SVB-related negative news has accelerated this money move.

While funds poured into MMFs, bank deposits decreased. According to data released by the Fed on the 24th, bank deposits fell by $100 billion from $17.6 trillion to $17.5 trillion in the week following SVB's bankruptcy until the 15th. Among these, deposits in small banks ($5.4 trillion) decreased by $200 billion. Conversely, deposits in 25 large banks increased by about $67 billion.

This indicates that investors withdrew deposits from small banks and transferred them to large banks or MMFs. In fact, JP Morgan recently reported that $550 billion moved from regional banks to large banks and MMFs over the past two weeks. Major foreign media reported that this phenomenon is occurring among both institutional investors and individual customers.

Andrzej Skiba, Head of U.S. Fixed Income at RBC Global Asset Management, explained, "When uncertainty rises in major markets worldwide, including the U.S., investors' impulse for safety becomes strongest. MMFs not only offer high yields but also provide significant stability to investors."