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America’s banks are missing hundreds of billions of dollars

economist.com

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Re: America’s banks are missing hundreds of billions of dollars

#11

Post by rwmj »

micah94 wrote: post #8
Uvix wrote: post #4

I’d managed to miss the memo that money market funds have such high rates now. I’ll have to consider doing the same, honestly…

Yeah, I had like $4k left in a brokerage account. Then one month I noticed ~$100+ dropped in there and I was like WTF? That's 10x what I see in my savings account for the same amount of money just sitting there! So my money market is now my savings account. The risk is that you could lose your principal...but I guess not anymore!?! Thanks SVB, FRC, et al.

In the UK cash deposits in brokerage accounts are guaranteed in the same way as bank accounts (up to £85,000), through the Financial Services Compensation Scheme. Is that not the same in the US?

Edit: To clarify, only the cash deposits, not any shares or bonds you buy of course. Also not all brokerage accounts, only ones based in the UK which have to be registered with the FSCS.

Re: America’s banks are missing hundreds of billions of dollars

#12

Post by Uvix »

rwmj wrote: post #11
micah94 wrote: post #8

Earlier quoted context omitted.

Yeah, I had like $4k left in a brokerage account. Then one month I noticed ~$100+ dropped in there and I was like WTF? That's 10x what I see in my savings account for the same amount of money just sitting there! So my money market is now my savings account. The risk is that you could lose your principal...but I guess not anymore!?! Thanks SVB, FRC, et al.

In the UK cash deposits in brokerage accounts are guaranteed in the same way as bank accounts (up to £85,000), through the Financial Services Compensation Scheme. Is that not the same in the US? Edit: To clarify, only the cash deposits, not any shares or bonds you buy of course. Also not all brokerage accounts, only ones based in the UK which have to be registered with the FSCS.

In the US it depends on the brokerage. Fidelity's cash deposits are FDIC-insured, like bank accounts; Vanguard is working on a similar program but hasn't rolled it out to everyone yet.

(On the other hand, the existing program at Vanguard puts the money into a fund that invests at least 99.5% of its assets in Federal government-backed securities, so it should be effectively just as safe.)

Re: America’s banks are missing hundreds of billions of dollars

#13

Post by thwayunion »

Uvix wrote: post #12
rwmj wrote: post #11

Earlier quoted context omitted.

In the UK cash deposits in brokerage accounts are guaranteed in the same way as bank accounts (up to £85,000), through the Financial Services Compensation Scheme. Is that not the same in the US? Edit: To clarify, only the cash deposits, not any shares or bonds you buy of course. Also not all brokerage accounts, only ones based in the UK which have to be registered with the FSCS.

In the US it depends on the brokerage. Fidelity's cash deposits are FDIC-insured, like bank accounts; Vanguard is working on a similar program but hasn't rolled it out to everyone yet. (On the other hand, the existing program at Vanguard puts the money into a fund that invests at least 99.5% of its assets in Federal government-backed securities, so it should be effectively just as safe.)

AFAIU, Fidelity's cash deposits are FDIC insured but the default "core" position -- where uninvested money goes to sit -- is SPAXX, which is not FDIC insured. That position is mostly U.S. Government Repurchase Agreements, with some treasuries and agency securities mixed in.

No idea what risks might be associated with everyone now treating these mutual funds as de facto bank accounts...

Re: America’s banks are missing hundreds of billions of dollars

#17

Post by snake_plissken »

"The answer begins with money-market funds, low-risk investment vehicles that park money in short-term government and corporate debt. Such funds, which yield only slightly more than a bank account, saw inflows of $121bn last week as svb failed."

Which banks' savings accounts are yielding anything close to money-market rates?

Re: America’s banks are missing hundreds of billions of dollars

#18

Post by thwayunion »

jkhdigital wrote: post #10

“The scheme was a seemingly innocuous change to the financial system’s plumbing that may, just under a decade later, be having a profoundly destabilising impact on banks.” Innocuous only to the fools at the Fed, I suppose. Outlets like ZeroHedge have been watching this for years, carefully documenting the transformation of the RRP facility from an “emergency” stabilization measure into a deposit roach motel.

"seemingly innocuous" is an impersonal construction referring to the reader, but not any reader in particular.

The Fed itself, at least some presidents thereof, was aware of this risk. Toward the end of the article:

"When the reverse-repo facility was set up, Bill Dudley, president of the New York Fed at the time, worried it could lead to the “disintermediation of the financial system”. During a financial crisis it could exacerbate instability with funds running out of riskier assets and onto the Fed’s balance-sheet."

Re: America’s banks are missing hundreds of billions of dollars

#19

Post by daydream »

thwayunion wrote: post #13
Uvix wrote: post #12

Earlier quoted context omitted.

In the US it depends on the brokerage. Fidelity's cash deposits are FDIC-insured, like bank accounts; Vanguard is working on a similar program but hasn't rolled it out to everyone yet. (On the other hand, the existing program at Vanguard puts the money into a fund that invests at least 99.5% of its assets in Federal government-backed securities, so it should be effectively just as safe.)

AFAIU, Fidelity's cash deposits are FDIC insured but the default "core" position -- where uninvested money goes to sit -- is SPAXX, which is not FDIC insured. That position is mostly U.S. Government Repurchase Agreements, with some treasuries and agency securities mixed in. No idea what risks might be associated with everyone now treating these mutual funds as de facto bank accounts...

Money in Fidelity money market funds is protected by the SIPC, up to $500k.

Specifically, for their cash management accounts: “Cash balances in the Fidelity® Cash Management Account are swept into an FDIC-Insured interest bearing account at one or more program banks and, under certain circumstances, a money market mutual fund (the "Money Market Overflow"). Deposits swept into the program bank(s) are eligible for FDIC Insurance, subject to FDIC insurance coverage limits. Balances that are swept to the Money Market Overflow are not eligible for FDIC insurance but are eligible for SIPC coverage under SIPC rules (referenced below). Fidelity automatically performs all transfers between the program banks and your account. You cannot access your funds directly from a program bank.” [1]

More detail: “Securities Investor Protection Corporation (SIPC) - All Fidelity brokerage accounts are automatically protected by the SIPC. SIPC protects brokerage accounts of each customer when a brokerage firm is closed due to bankruptcy or other financial difficulties and customer assets are missing from accounts, including a limit of up to $500,000 in securities with a maximum of $250,000 on claims for cash awaiting investment. Money market funds held in a brokerage account are considered securities. For more information, visit sipc.org.” [2]

[1] https://www.fidelity.com/cash-management/fidelity-cash-manag...

[2] http://personal.fidelity.com/misc/ekits/pdf/safeguarding_you...

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