Depositors are pulling billions of dollars out of the traditional banking system, according to a new report from the Federal Deposit Insurance Corporation (FDIC).
The agency’s new quarterly banking profile says domestic deposits decreased $197.7 billion in the second quarter of this year.
That’s a 1.1% decline and a reversal from Q1, when US banks witnessed a $190.7 increase in deposits.
The deposit flight comes as historic amounts of money continues to pile into money market funds, which have offered highly competitive rates compared to traditional bank savings accounts in recent years.
New numbers from the Federal Reserve Economic Data (FRED) show the amount of capital invested in money market funds has soared to over $6.54 trillion as of June of this year, a number that’s surged every quarter since the end of 2022.
Money market funds allow people easily get exposure to lower-risk and short-term debt securities including US Treasuries.
Investors began flocking to the funds in 2022 when the Fed began to aggressively raise interest rates in an effort to stifle soaring inflation, significantly boosting yields in short-term Treasuries.
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