Tens of billions of dollars have reportedly left three US banks as depositors look for better alternatives that could generate higher returns on their savings.
According to a new Financial Times report, nearly $60 billion worth of deposits have been yanked out of banking giants Charles Schwab, State Street and M&T in Q1 of 2023.
The report says that Charles Schwab took the brunt of the outflows last quarter after depositors withdrew $41 billion from the financial institution in a span of three months. Meanwhile, custody bank State Street witnessed about $12 billion leaving its coffers after deposits declined by 5% to $224 billion in the first quarter.
As for the New York-based M&T Bank, the Financial Times report that customers pulled out over $4 billion as deposits fell 3% from $163.5 billion in Q4 of 2022 to $159.1 billion in Q1.
According to the report, depositors are withdrawing their savings out of low-yielding bank accounts at a rapid rate to take advantage of the high interest rate environment. The Financial Times says that the Federal Reserve’s tight monetary policy has driven bank customers to withdraw and put their capital in higher-yielding opportunities such as money market funds or Treasury bills.
The US average interest rate for savings accounts currently stands at 0.24% APY (annual percentage yield). Meanwhile, short-term Treasury notes generate yields of more than 5%, in line with the Federal Reserve’s 4.75% to 5% benchmark rate.
The Financial Times also reports that the collapse of Silicon Valley Bank (SVB) and other lenders has supercharged the movement of cash out of US banks.
Last month, SVB’s parent firm filed for bankruptcy after the bank revealed $1.8 billion in losses, mainly from selling US bonds that lost much of their value due to the Fed’s aggressive rate hikes.
The New York-based commercial bank Signature Bank also shuttered its doors last month after losing roughly $17.8 billion in deposits.
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