Investors flock to cash fastest since start of the pandemic amid banking turmoil

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As the banking system faces uncertainty, investors are rushing to cash at the quickest rate since the pandemonium of the early days of the COVID-19 pandemic.

Bank of America researchers, led by Michael Hartnett, said in a note that there has been an enormous wave of inflows into cash funds across the world following the collapse of Silicon Valley Bank and the absorption of Credit Suisse into UBS. The team also predicts that credit and equity markets will falter in the next few months.

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“Credit and stock markets too greedy for rate cuts, not fearful enough of recession,” the researchers said, according to Bloomberg.

Global cash funds had inflows of a whopping $300 billion over the past month and in just the week ending on Wednesday alone, inflows were nearly $143 billion. Assets in money market funds have grown to more than $5 trillion, which is the highest level in recorded history.

People typically go to cash when the stock market is performing poorly and financial uncertainty is high. The stock market has recently been roiled by the SVB collapse and has acted like a see-saw, swinging up and down unpredictably as investors digest different morsels of financial news.

Generally speaking, stock indices are in the red over the past month and are down when looking from the start of the new year.

The SVB failure didn’t just affect U.S. financial markets but also those in Europe.

UBS agreed to buy out fellow Swiss competitor Credit Suisse last week after investors in Credit Suisse began to flee the firm amid turmoil. UBS paid just over $3 billion for Credit Suisse, a mere fraction of the firm’s estimated value.

The latest victim of banking uncertainty is Germany-based Deutsche Bank, which plunged by 11% on Friday. It was the third day in a row that the megabank saw its value decline, with shares losing more than a fifth of their total value so far this month alone.

German Chancellor Olaf Scholz on Friday addressed the matter and said there is no basis to speculate about the firm’s future. He said that Deutsche Bank had “thoroughly reorganized and modernized its business model and is a very profitable bank,” according to CNBC.

Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have been working to shore up confidence in the banking system.

In an effort to stop a run on other banks and a hit to the broader economy, the federal government announced that it would back all deposits in Silicon Valley Bank and Signature Bank, including those in excess of the FDIC’s $250,000 threshold.

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The central bank also rolled out a new source of funding for banks that might face runs by depositors, called the Bank Term Funding Program. The Bank Term Funding Program offers up to one-year loans to banks and other financial institutions for collateral valued at par value.

In a Thursday update on emergency borrowing, the central bank said that borrowing from the Bank Term Funding Program has now quickly grown to $53.7 billion, up from $34.6 billion the week before. Borrowing is also high from the Fed’s discount window, which is its permanent program for lending to banks that might be having liquidity problems.

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