Consequences of the banking crisis in the US.

Investors are piling in cash at their fastest pace since the pandemic. Small and medium-sized banks in the US are the most affected, and cash flow is directed mainly to money market funds.

Assets in US money market funds have now reached a record $5.2 trillion, according to data from industry firms, with more than $300 billion of that added in the three weeks to March 29. Predictions are that the flow from banks to funds could go even further.

Money funds put money into short-term instruments, such as Treasury bills or repurchase agreements, and pass on what they earn to investors. Although the immediate anxiety of more bank failures has subsided, investors have continued to pour money into money funds. Keeping deposit rates close to zero is becoming increasingly untenable and banks will be forced to quickly offer better interest rates. So, it is very likely that the consequences of the tension in the banking sector will bring quite rapid changes and, accordingly, the pressure in the banks will continue in another direction, which will mean an increase in interest rates on all investment products and a strong encapsulation of the entire sector. The impact on the real economy could be entering a recession.

 Dealer Radoslav Valov

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