US Banking Deposits Surge into Money Market Funds, Fed's BTFP Program Raises Concerns

 Recent data shows that bank deposits in money market funds continue to surge in the United States, reaching a historical high of $5.34 trillion as of May 17th. Concurrently, the Federal Reserve's Bank Term Funding Program (BTFP) has witnessed a significant increase in loan volume, reaching $87 billion, indicating that the crisis may still persist.

According to the Investment Company Institute (ICI), money market funds have been expanding their size, continuing the trend from the previous week. As of the week ending May 17th, approximately $13.6 billion flowed into US money market funds, pushing their total size to a historical high of $5.34 trillion. Over the past three months, money market funds have grown by over $520 billion.

The continuous inflow of funds into money market funds can be attributed to two factors. Firstly, the market interest rates have been increasing due to the Federal Reserve's ongoing rate hikes, which enhances the advantage of depositing funds. Secondly, the crisis in the banking sector has led to "small bank deposit risk," prompting funds to shift towards safer money market funds. In addition to investing in Treasury securities, money market funds have become significant participants in the Fed's $2.25 trillion overnight reverse repurchase operations (ON RRP), diverting substantial funds away from banks and into the Fed, causing increased pressure on banks.

As the US debt ceiling deadline approaches, the yields on short-term Treasury bills continue to decline (as these bills are generally considered to have no default risk), leading money market funds to favor shifting funds from Treasury bills to the RRP tool. This could further reduce bank reserve balances and result in continued liquidity challenges.

The Federal Reserve's support for banks is still ongoing. As of the week ending May 18th, outstanding loans from the Fed amounted to $96.1 billion, higher than the previous week's $92.4 billion. Notably, the loans provided through the BTFP program to address the crisis at Silicon Valley Bank surged to $87 billion, while loans through the discount window decreased to $9 billion. This indicates a growing reliance on the BTFP program. The recent rebound in US bank stocks suggests that the market believes the banking crisis is receding.

US bank deposits continue to flow into money market funds, reaching a historic high of $5.34 trillion. The combination of rising market interest rates and concerns over small bank deposit risks has fueled this trend. As the US debt ceiling deadline looms closer, the shift from Treasury bills to the Fed's RRP tool may further strain bank reserve balances and liquidity. The ongoing support from the Federal Reserve, particularly through the BTFP program, highlights the persistence of the crisis in the banking sector. Despite some signs of recovery in the US bank stocks, market participants remain cautious about the industry's stability.

#USBanking #MoneyMarketFunds #FederalReserve #BTFP #BankingCrisis #LiquidityChallenges

Debt Ceiling Deadlock and Mixed Earnings Reports Weigh on US Stocks, Financial Sector Falters

 Investors continue to digest a mixed bag of earnings reports as debt ceiling negotiations remain deadlocked. US stocks closed weak on Friday (19th), with financial stocks performing poorly. The S&P ended the day down 0.14%, breaking its two-day winning streak. The Dow slipped over 100 points, the Nasdaq fell 0.24%, and the Russell 2000 dropped 0.62%. The Republican and Democratic parties suspended negotiations on raising the debt ceiling on Friday, fueling growing anxiety in the financial markets as the deadline approaches.

The market continues to closely monitor the prospects of the Federal Reserve's monetary policy. On Friday, Fed Chair Powell stated that price stability is the foundation of a strong economy and maintaining price stability is the central bank's responsibility. Given that US inflation is well above the 2% target, there may be no need for further interest rate hikes considering the potential credit pressure. As several regional banks continue to fail, there may be a need for more bank mergers to take place.

#DebtCeiling #EarningReport #USstock #Finance #Dow30 #Nasdaq #Russell2000  #StockMarket #Republican #Democratic #MonetaryPolicy #Fed #centralbank 

New Loan-to-Deposit Ratios Released by Federal Agencies to Ensure Compliance with Riegle-Neal Act

 The Federal Reserve, FDIC, and OCC have released new host state loan-to-deposit ratios to assess compliance with the Riegle-Neal Act. These ratios replace the ones from June 2022. The act prohibits banks from establishing branches outside their home state solely to acquire deposits, aiming to ensure banks also support the credit needs of local communities. 

The Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have released the host state loan-to-deposit ratios for compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. This section prohibits banks from establishing branches outside their home state primarily for deposit production. If a bank's statewide loan-to-deposit ratio is at least one-half of the published host state ratio, it is deemed compliant. If not, a second step is conducted to assess if the bank is adequately meeting the credit needs of the communities served by its interstate branches. Failure to comply with section 109 may result in sanctions. The ratios were estimated using available data from the Consolidated Reports of Condition and Income and Summary of Deposits Surveys as of June 30, 2022. Certain types of banks, such as wholesale or limited purpose banks under the Community Reinvestment Act, were excluded from the calculation. The host state loan-to-deposit ratios will be published annually, along with any changes in the calculation method.

The release of host state loan-to-deposit ratios by the regulatory agencies is a part of their efforts to enforce section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act. This section aims to prevent banks from establishing branches in other states solely for the purpose of deposit production. The two-step process described in the statement indicates that compliance with section 109 is determined by comparing a bank's statewide loan-to-deposit ratio with the published host state ratio. If the bank's ratio meets the required threshold, it is considered compliant. Otherwise, the bank's contribution to meeting the credit needs of the communities it serves is evaluated. The use of proxy data from call reports and summary of deposits to estimate the ratios reflects the agencies' attempt to gather information without imposing additional regulatory burdens on institutions. Certain types of banks, such as wholesale or limited purpose banks, are excluded from the calculation due to their specific characteristics, such as large loan portfolios and limited deposits.

The FDIC

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that was established in 1933. The FDIC's primary role is to protect depositors and maintain stability in the U.S. banking system. The FDIC provides deposit insurance, which guarantees the safety of deposits in member banks up to a certain amount per depositor, currently set at $250,000 per ownership category. This insurance helps maintain public confidence in the banking system and ensures that depositors' funds are protected.

In addition to deposit insurance, the FDIC also regulates and supervises banks to ensure their safety and soundness. It examines financial institutions, monitors their compliance with banking laws and regulations, and takes appropriate action when necessary to protect depositors and the integrity of the banking system. The FDIC also plays a crucial role in the resolution of failed banks. When a bank fails, the FDIC may step in as the receiver and oversee the orderly liquidation or sale of the bank's assets, ensuring that insured depositors are promptly reimbursed.

Overall, the FDIC serves as a vital institution in maintaining the stability, integrity, and public confidence in the U.S. banking system through deposit insurance, bank supervision, and resolution of failed banks.

The OCC

The Office of the Comptroller of the Currency (OCC) is an independent bureau within the U.S. Department of the Treasury. Its primary mission is to ensure the safety and soundness of the national banking system and to protect the rights of bank customers. The OCC is responsible for chartering, regulating, and supervising all national banks and federal savings associations in the United States. It oversees approximately 1,200 national banks and federal savings associations, which together represent a significant portion of the U.S. banking system.

The OCC's main functions include:

1. Chartering: The OCC has the authority to grant national bank charters to new banks and federal savings association charters to savings institutions. It evaluates the applications and ensures that the institutions meet the necessary requirements.
2. Supervision and Examination: The OCC conducts regular examinations of national banks and federal savings associations to assess their safety and soundness, compliance with laws and regulations, and overall risk management practices. It provides guidance and supervision to address any issues or deficiencies identified during these examinations.
3. Regulation and Policy: The OCC establishes and enforces regulations and policies that govern the operations of national banks and federal savings associations. It issues guidelines, interpretations, and bulletins to provide clarity and guidance to the institutions it supervises.
4. Consumer Protection: The OCC works to protect consumers by ensuring fair treatment and adherence to consumer protection laws and regulations. It provides oversight and enforcement related to consumer financial laws, including the Community Reinvestment Act, which promotes lending and investment in low- and moderate-income communities.
5. Community Reinvestment Act (CRA): The OCC is responsible for assessing and evaluating the CRA performance of national banks and federal savings associations. It encourages these institutions to meet the credit needs of their communities, particularly in underserved areas.
6. Enforcement and Compliance: The OCC has the authority to take enforcement actions against banks and individuals for violations of banking laws and regulations. It can impose penalties, issue cease and desist orders, and remove officers and directors when necessary.

Overall, the OCC plays a crucial role in ensuring the safety, soundness, and fairness of the national banking system, as well as promoting consumer protection and community development through its regulatory, supervisory, and enforcement functions.

#FDIC #FederalReserve #RiegleNealAct  #OCC #Regulation #Policy #DepositInsurance #CRA #Banking 

CFPB Prioritizes Resilient Mortgage Rules to Safeguard Consumers and Market Stability

 The The Consumer Financial Protection Bureau (CFPB) has been reviewing its rules and guidance documents since 2021 and has identified complex and industry-centric policies in federal mortgage rules. One significant issue is the reliance on the average prime offer rate (APOR) for compliance obligations, which is calculated and published by the CFPB. However, the data used to calculate APOR has faced challenges due to the reliance on a single entity, such as Freddie Mac, which recently changed its data collection methodology. The CFPB has addressed this by selecting a new data provider and implementing a new methodology for calculating APOR. This situation highlights the need for more resilient and durable rules that do not rely on single entities or complex benchmarks. The CFPB acknowledges the need for long-term solutions to ensure system resilience, eliminate unnecessary complexity, and welcomes feedback on rule-making approaches.

It appears that the CFPB's recognition of the need for more resilient and durable mortgage rules is a positive step towards ensuring a fair and stable market. By addressing the challenges with the APOR calculation and seeking long-term solutions, the CFPB aims to enhance the effectiveness of consumer protection measures and reduce potential vulnerabilities. The commitment to eliminating unnecessary complexity and welcoming feedback indicates a proactive approach to improving the rulemaking process. Overall, these actions demonstrate a willingness to adapt and make necessary changes to strengthen the mortgage market and better serve consumers.

Source:https://www.consumerfinance.gov/about-us/blog/building-resilience-and-durability-into-mortgage-rules/?utm_source=newsletter&utm_medium=email&utm_campaign=general_updates&utm_term=5.19.23

#CFPB #ConsumerFinancialProtection #Consumer #Financial # FederalMortgageRules #APOR