Shadow bank boxing as money funds drain deposits

Crisis mode: The SVB Private logo is displayed outside a branch in Santa Monica, California. The bank faced a peculiar combination of low levels of liquid capital and high share of uninsured deposits. — AFP

CASH-LIKE money funds could increasingly suck deposits from smaller US banks until lagging bank savings rates are finally forced up to compete while the Federal Reserve (Fed) keeps rates high for the rest of the year.

Part of the so-called “shadow bank” complex of non-bank financial institutions, money market funds invest largely in Treasury bills and securities yielding more than 4% for the first time in 15 years and are now far outshining what many banks are offering on deposit.