Money market funds are a headache not only for banks
Mar 31, 2023
5.13 trillion USD are currently invested into US money market funds. Over the last 2 weeks alone 238 billion USD have been flowing into these products! This is rational from an investor’s perspective who reduce counterparty risk with individual banks and receive higher yields in the funds than on bank deposits. However it puts the banks in a difficult spot as they need to make difficult choices: a/ reduce their long term investments and eventually realize losses b/ find other sources to financing their lending activity and c/ reduce their lending exposure. This creates tighter monetary conditions for the US economy as a whole and is going to stay with us for longer.