Lambert Strether writes at Corrente.
It’s with some trepidation that I post something on actual finance, but the $114 billion withdrawal story struck me as strange at the time, and then… it vanished, as mysteriously as it had appeared. I don’t like patterns like that, or loose ends like that. So I’m putting the the mystery before the NC commentariat, in the hopes that they’ve got better answers, not than I do (that would not be hard), but than the business press did in their coverage. As the great Peggy Nooonan once remarked: “It would be irresponsible not to speculate!”
I’ll start with the Russia Today AFP story on January 25, because that’s where most of the blog coverage (and especially CT blog coverage) began:
US Federal Reserve is reporting a major deposit withdrawal from the nation’s bank accounts. The financial system has not seen such a massive fund outflow since 9/11 attacks[*].
The first week of January 2013 has seen $114 billion withdrawn from 25 of the US’ biggest banks, pushing deposits down to $5.37 trillion, according to the US Fed. Financial analysts suggest it could be down to the Transaction Account Guarantee [TAG] insurance program coming to an end on December 31 last year and clients moving their money that is no longer insured by the government.
Bloomberg, in its January 23 story, had concurred on the TAG theory:
“Customers may be moving money no longer insured by the U.S., drawing down year-end balances and investing in advancing equity markets…. What you are seeing now is probably TAG money,” Subadra Rajappa, a fixed-income strategist at New York-based Morgan Stanley, said in a phone interview. “Some of the banks’ corporate customers have said they were going to take the money out” if the program expires as it did, she said.
Unfortunately, the TAG theory seems not to be correct. From the Businessweek coverage on January 23**
But hold on: The Fed data show $114 billion leaving the 25 biggest banks—about 2 percent of their deposit base. Only $26.9 billion left all the others, equivalent to 0.9 percent of their deposit base. Experts had predicted that the end of TAG would hurt the nation’s small banks because the big ones are still considered too big to fail. … Small banks fearfully lobbied the Senate to extend TAG, with analysts telling the New York Times that they expected $200 million to $300 million—yes, with an m—to move from affected accounts into money market funds or elsewhere.
So the TAG theory is wrong both on expected magnitude ($300 million tops vs. $114 billion) and expected direction (away from the big banks, not the small ones***). Businessweek goes on to present alternative reasons:
Paul Miller, a bank analyst with FBR Capital Markets, cautions against reading too much into the Fed’s weekly data. “It’s a noisy database,” he says. Among large U.S. banks, there have been movements of greater than $50 billion (not seasonally adjusted) during 107 different weeks since 2000. It’s not uncommon to see 11-figure swings—that is, tens of billions of dollars—from positive to negative, or vice-versa, one week to the next.
Noise can increase near the start of a year. “The first quarter is always a wacky quarter,” Miller says. And January 2013 has seen an incredible amount of change [like the Fiscal Cliff and an increase in the payroll tax].
Well, I agree that $114 vs. $50 billion isn’t an order of magnitude difference, but still Miller’s theory strikes me as a fancy way of saying “It’s a mystery!”
One thing we can be reasonably certain of is that it wasn’t a bank run. And we should know better soon:
“If deposits are really trending down—and at the end of the month, we’ll be smarter than we are now—if that’s the case, it can tell us a few things,” says Dan Geller, executive vice president of Market Rates Insight. “And one thing that it could tell us is that the law of elasticity is finally catching up with deposits.” In other words, contrary to what economic theory predicts, deposits have been piling up at banks ever since the crisis, even though they offer pitiful yields. Geller says that may finally be ending—though like Miller, he says not to put too much stock in just one burst of Fed data.
However, if depositors are “tapping into their year-end cash hoards” the $114 billion isn’t going into Treasuries:
“If people were shifting out of bank deposits and looking for a government-type return we’d see more growth in Treasury funds,” he said. “It doesn’t seem to be happening.”
Treasuries had declined 0.31 percent this month through yesterday, Bank of America Merrill Lynch data show.
I remember, vaguely, an extremely long New Yorker story that turned out to be about not finding a thought-to-be extinct bird in a swamp. This post is a little like that story, isn’t it? Still:
1. A change of very great magnitude
2. In an unexpected direction
3. That nobody can explain
Is a story to watch, isn’t it?
NOTE * I’m not sure where this comparison comes from. “The Federal Reserve at one point injected more than $100 billion in additional liquidity, an unprecedented sum. At the core of it all was the disruption of interbank payments.” The Fed See Jeffrey M. Lacker. Payment System Disruptions and the Federal Reserve Following September 11, 2001. Federal Reserve Bank of Richmond, Richmond, Virginia, 23219, USA, November 17, 2003 [PDF] Not sure that “liquidity” is directly comparable to bank deposits, though. Maybe somebody who knows how to work the Fed’s site can give a better answer than I can.
NOTE ** The RT story propagated through the blogosphere and the foil sphere, the Businessweek story through twitter. But little overlap!
NOTE *** Not that there is any reason not to trust the big banks.
Hmmm. I read about this yesterday and it also piqued my interest. It smells like to me that the wealthy are moving their money into hard assets now before a big crash to come. Wasn’t there something a week or two ago saying that the US Mint has sold out of silver in just the first few weeks of January, with over 4 million ounces sold? And gold sold over 57000 ounces in just the first few days of January. Maybe there are some other assets that show similar heavy volumes in the past month and can help to show where all that money went? Otherwise, I’d be suspicious of margin calls involving some banks that are far more unstable than we are being led to believe. Has anyone followed up on the true extent of the London whale?
I think much of this money has gone to fuel the early stages of a new equities bubble.
For every buyer, there has to be a seller.
Only an IPO gets additional money into the stock market.
All other transactions is just money changing from B(uyer) to S(eller) in exchange for shares from S to B. At the end of a trading day the amount of money in cash accounts is the same. Only the names of the cash accounts have changed.
IPO is a perfect example of endogenous money creation; this is similar to banks creating asset-liability pairs for every mortgage/loan they create.
…Carol has not read “Treasure Islands”=Shaxson, and “Hot Money”, Naylor…international offshore banking secrecy jurisdictions…
That was Bloomberg sending his donation to Johns Hopkins.
I suspect this is due to consumers being forced to draw down on their savings. The question is: are they doing it because they’re even more strapped for cash or because they’ve decided to re-trench and resume the stalled deleveraging process. The latter is quite deflationary.
Inmteresting story, that’s a tidy sum money moving out of the big banks. Not sure why. But in general moving moving out of the big banks should be a positive development since it’s less money required for bailing them out AGAIN.
More people moving money to credit unions?
Romney pissed at losing election moves his money off shore?
Flanking move by the silver liberation army?
Repo 105 for the masses?
Please let us know what this was when you find out.
Yes, there is a substantial crack in the dam.
But cracks happen all the time. No cause for alarm.
So go back to doing what you were doing, peasants in the valley below. Rest assured, we’ll let you know if there are any new developments.
(Or we won’t! My God, are you telling me the crack is now a hole?)
It’s non-US banks shifting their dollars around due to the end of TAG.
The money is moving out of big US banks because they are the main agents for non-US banks/institutions. European banks for example will not use a small bank as their local bank, but opt for the bigger ones. Non-US banks/institutions also have been swapping other currencies for USD just to be able to take advantage of the TAG programme.
What you’ll see next is further diversification within US banks (with more money potentially flowing to smaller banks) and simply less USD being posted at the Fed (as it moves back into toher currencies).
I agree, but not just non-US banks, many funds were using TAG-insured accounts for third-party collateral arrangements and have switched those funds into proper custodial accounts and/or Treasuries. Strether accepts the Businessweek thinking too easily: “. . . because the big ones are still considered too big to fail.” “Too big to fail” really means “too big not to bail out” (i.e. it does not mean that the big banks are magically prevented from going into default simply due to size), which means a “TBTF” bank could go into distress for a period and there is therefore a risk of a delay in accessing funds at a time when they are most needed, i.e. during a crisis.
“Risk of delay” — check. What an interesting idea. That said, is this enough to account for the scale of the movement?
The seasonally adjusted level makes it to $52.8 billion (totally, about 2 per cent of the 25 biggest banks their deposit base; though stills the third-highest amount on record) and, probably, due to the expiration of the Transaction Account Guarantee program.The TAG program offered unlimited insurance for non-interest-bearing accounts (as “too big to fail,” banks were bailed out, small banks were susceptible to runs) and ended Dec. 31, 2012.
hmmm i’ll return with some GMOless Popcorn (wish me luck)
is this what a currency war looks like?
South Korea’s central bank governor on Saturday questioned the efficacy of Japan’s decision to ease monetary policy, saying its decision to start buying assets in 2014 could have unintended long-term consequences.
The move by the Bank of Japan was also done in a hasty manner and would lead to large movements in the foreign exchange market, said Bank of Korea Governor Kim Chong-soo.
“What they did created a couple of problems,” Kim said in an interview at the World Economic Forum in Davos. “One is that the level (of the currency) is affected, and the pace of change is also a problem. They did it too hastily.”
Key for the Bank of Korea is a stable exchange rate, Kim added.
The yen has come under pressure since reports on Thursday quoted Japan’s deputy economy minister, Yasutoshi Nishimura, as saying the yen’s decline is not over, and that a dollar/yen level of 100 would not be a concern.
The Japanese currency is now trading around a 2-1/2 year low against the dollar at around 90 yen, as the market remained focused on Japan’s pursuit of a reflationary economic policy.
Talk about a currency war has dominated discussions at the Swiss ski resort of Davos this week, with many central bankers and business executives questioning the wisdom of continuing an easy money policy.
Kim’s comments come as top executives at Japanese companies say that the Bank of Japan has been too slow in responding to the yen’s rise after the financial crisis.
“There is no explanation why the Japanese currency should appreciate 40 percent to the dollar after the financial crisis, while the won decreased compared to the dollar,” said Nissan’s Chief Executive Carlos Ghosn on Friday.
But why would there be a need for a currency way? After all things are fine. We’ve been told the worse has passed and that the crisis is over.
Ben’s offense is lookin beaten bloody & past tired…
‘crisis over’ cheerleaders may have to do a topless halftime
Lamberts morning link to ‘Financial Mkt Outlook for 2013’ ties into this ‘mystery’ with a few more in the works:
Exogenous Shocks There are so many potential non-financial shocks, with indirect substantial financial consequences, that it is impossible to list them all. The obvious ones at the moment consist of a military skirmish between China and Japan, military conflict between Israel and Iran, an expansion of the Syrian civil war that drags in larger countries like Russia and the US, continuing natural disasters due to climate change, an outbreak of global illness from a highly contagious pathogen, further destabilization in the Arab Spring countries that then leads to damage to the oil market, the eruption of a currency war among the major countries (a cold war of competitive devaluations is already occurring), the imposition of undue fiscal austerity in the US or Europe, trade sanctions or a trade war occurring, especially between the US and China but equally likely between the US and Japan, and a concerted effort by some countries to dethrone the US dollar as the world’s reserve currency (both Russia and China would dearly love to accomplish this, under the mistaken impression that somehow their currencies would replace the dollar to a degree). A sufficiently strong exogenous shock would find the world unable to summon up the financial resources to deal with it, not to mention that global cooperation has been deteriorating for years now, making it far less likely that a quick consensus could be formed to deal with it.
Actually, Popcorn is (for the moment) not GMO, regardless of where you buy it:
Not seasonally adjusted deposits Jan 2nd 9452.5 billion Jan 16 9291.8 billion giving 161 billion difference (H8 Pge 5).However it is still 160 billion up on the end of november.Net due to related foreign offices (h8 page 7) looks particularly volatile around year end. Data does not show much of an effect for small banks.
It could be window dressing for year end accounts switching deposits between countries. Personally I think the key is Net due to related foreign offices. The cleveland Fed has a good report on this and it is indicative of MMF withdrawing funding from Europe and dollar liquidity constraints.
Since europe is supposedly improving it is still a mystery and maybe linked to LTRO pay backs ?
Brick wrote’ net due to foreign related offices’
It’s is my guess as well.
As euro land is squeezed by austerity, they alleviate their shortage of currency by tapping their U.S. dollar deposit accounts. The exchange rate is moving in the current direction of euro stengthening, as dollars holders bid for euros.
I’ll defer to Lambert’s editorial decision on this point, but perhaps “great” might be a typo in the first paragraph, as in “the great Peggy Noonan.”
“the great [propagandist] Peggy Noonan” almost works, but she’s not really great, assuming “great” is a positive.
Even “great [liar]” fails because the public relations static she generates differs little from that of endless other soulless liars [hardly] working in the industry created by Edward Bernays nearly a century ago.
“great [zero] Peggy Noonan”
“great [human simulacra]”
“great [accumulator of undeserved financial reward]”
the last one is the closest thing I can think of that might qualify Peggy as “great” but even that’s a stretch.
Then again irony detection is not an absolute science. I would just hate to think that any reader might have read that unaware of Peggy’s somewhat insignificant contribution to human society and how toxic and worthless to the living that poisonous contribution was.
She may be a nice mother or daughter but “do no harm” is not in her lexicon and as for doing anything “great” that isn’t harmful, I doubt she has it in her. A pity, but some excel more at other in certain areas. Her expertise might be “evil” however banal that may be.
Don’t let me derail the subject. As always, when Lambert writes, smart people and those keen to learn read nearly every word.
The epithet “the great” as Lambert attaches it to Noonan (whom he frequently calls “Nooners”) is, trust us, ironic :)
It is ironic; but if I had to choose between two horrible columnists, I’d choose Nooners over (say) MoDo in heartbeat, because Nooners is the better writer. She’s also an important bellwether.
In addition: the sentence — It would be irresponsible not to speculate! — is so general, and has not doubt been said/written by countless people. So why contribute it to anybody at all. And definitely not to the small P.N.
To lazy to find the link, but my strong recollection is that Nooners invented the phrase, or at least popularized it (for which she gets points) during a particularly egregious episode in the soft Republican coup during the Clinton administration (which began with Whitewater and ended with Bush v. Gore).
“Nobody could have imagined [obvious pitfall / cancelled right].” Yeah, sure. I can imagine some pretty exasperating dystopias, but the grinning pricks presented as potential leaders continue to plumb depths beyond the limits of rational despair.
By way of contrast, even the most horrifyingly bad acid trip comes to an end after a reasonably short period of time and reality resets itself to its default parameters, before the physical tension and breathing walls manifested themselves.
The grinning pricks’ changes are sticky.
In my short lifetime, each four year US Presidential term has marked the darkest hour before the dawn and the point at which a non-cyclopean pendulum would begin to swing in any other direction. But the damn thing never ever does.
This mythical theory about each generation having it better than the last, the concept of bootstraps existing and having a purpose, the idea that hard work will somehow lead to a less desperate and hopeless condition in the future, that crime for others does not pay, rule of law isn’t just a gotcha to bludgeon those who fail to submit respectfully, that Chomsky was some kind of negative nancy instead of a teary eyed optimist, that freedom/liberty/democracy have some meaning unrelated to “cage,” etc… all garbage and fairy tale nonsense.
The trajectory since I was given the opportunity to whore out my body and soul and life units to corporate tyranny for pennies to start and less in the future has been ever downwards even along paths marked “upward mobility this way, sucker.” Downward, downward, downward my lying mind tells me, while those trained to understand societal trends report how wonderful the outlook is and how well everyone is doing who isn’t me or anyone I know.
Nooners… “great”… I suppose it does work here in dyslexia world where some things are backwards, if you don’t realize they are.
At least Sean Hannity doesn’t know how to write. Maybe he could scrawl an American flag strangling, being inserted into and otherwise torturing nice people, kittens and puppies. Maybe he could will have been more “great”-er than Nooners.
Even if he has a ghost writer or is able to write words that follow a logical consistency, I don’t really want to know.
Public Relations: worst thing ever or just another drip in an endless session of water torture?
If I weren’t an optimist myself I might consider following Aaron Swartz’s example, but I don’t believe in any do-over or afterlife, so I’m stuck here. At least there’s a decent blog to read. Enough venting and I apologize.
Noonan also coined the phrase ” Big Insura”. She meant it to be dripping with some sort of irony I am sure. But I have tried to use it here and there in hopes it might take off just like Big Pharma.
Big Insura. Big Pharma. Big Insura. Big Pharma. Big Insura.
Maybe it will take off, to Noonan’s deep chagrin.
Jinkies! Thanks for that exposition. For a minute there I thought the estimable Mr. Strether had referred to Molly Ivins!
Over the last few years I have notice many “one offs” in FED data. One off meaning an extreme move. It’s almost like they are probing for a reaction.
That’s approriately foily. What test would you use to distinguish a “probe” from a random fluctuation?
When an expert says, “One thing we can be reasonably certain of is that it wasn’t a bank run.”
That’s the one thing we can reasonably be certain it was!
Federal Reserve is guaranteeing $90 billion in bank deposits every month (excess reserves) … WHY is the Fed guaranteeing $90 billion worth of bank reserves every month?
There has to be a reason … right?
Well, I’m no expert. The link is to Google trends, and there’s no spike of users searching on “bank run.” So if it is a run, it’s a run by a small and select group, not the broad masses of the people (vile phrase).
So, answer “Who” and you’ve got “Why”…
My hunch is that is has to do with wealthy Chinese moving to conceal assessts held in the US due Xi Jinping’s crackdown.
A friend just sent me this LS.
Apple moved its cash hoard offshore?
Just a couple weeks ago, it was reported that the banks were holding record deposits.
“Bank stocks currently hold $10.6 trillion in deposits at the end of 2012. This is an all-time record-high, according to Market Rates Insight Inc. Conversely, loans outstanding declined 5.3% since 2008.”
“Wads of Cash Squeeze Bank Margins”, Wall Street Journal, January 11, 2013
In the context of $10.6 trillion, is $114B (or 1%) a significant number?
I don’t understand how banks do their bookkeeping but if institutions like WFC are lending less deposits and investing more into hard assets, would that account for the change?
I’d think its reasonable to assume that some of the influx of deposits is due to early dividend payouts and capture of capital gains as a result of the fiscal cliff. Perhaps investors are taking these sums and reinvesting in markets (and emerging markets seem to be doing well)?
Folks, last December the Treasury ran a $20 billion surplus. This January it’s set to run a $29 billion deficit, way below the $90 billion per month average of 2012 and even further below previous average deficits. The private sector is being undermined by insufficient spending and continuing uncertainty, so people are withdrawing their funds and re-trenching.
Wow. That’s very interesting.
I wonder how much is related though to the fiscal cliff and people taking their profits in 2012? Were revenues up or was spending down?
The withdrawals are probably money connected with both Iranian, drug money and terrorist stashes.
After the recent HSBC debacle JPM and BAC no doubt politely informed their criminal clients to take their money elsewhere!
i forgot about a ‘scary’ large audit going on in NY
Jim Sinclair June 2012
There is a big problem brewing again in the OTC derivative market.
A major international financial auditing firm is currently involved in a massive project on Wall Street that presently has over 900+ consultants involved, which is massive and beyond even the size/scope of the Fannie Mae restatement several years ago. They’re grabbing any senior financial analyst and software expert that they can to help this “unnamed” major Wall Street bank calculate valuations for a suddenly devaluing portfolio of Credit Default Obligations that they have heavily invested in. This auditing firm is charging nearly double their normal billing rate and is getting it, no questions asked.
(Jims archives aren’t loading for me so i don’t have the direct link.)
anyone caught wind of this party???
i won’t tell ‘ ))
Hmmmmm, June of last year. Wasn’t that just about the time when Morgan Stanley was transferring derivatives from their $50T (notional, third largest in U.S. after JPM and BAC) portfolio into their insured bank?
~LL……. starting rumor that MS portfolio is going under, bringing down the greater derivatives market in a domino effect, and the global financial markets with it
LL that was my 1st thought when i backed into the piece. i even considered JPM dumping their toxins onto MS balance sheets…and of course JPM coming in for the kill.
(btw i read this piece the day Jim wrote it and its haunted me…imagine the boatload of counter parties they’ll encounter throughout the audit…the horror)
What is missing, exactly, is “Which depositors withdrew?”
Yeah it seems a little bit vague. I suspect there’s some comingling of bank and customer funds going on.. borrowing from the consumer to pay off some other consumer fund which was previously evacuated to pay for something else (which was an emergency at the time, of course).
A while back they were dipping into some government pension funds for a few months before a budget was reached. So many shady things go on with these bankers it’s hard to say what it might be, and you know the whole system is badly under-collaterlized and over-pledged, so there is kiting going on all the time, borrowing from peter to pay paul.
Hmm, no mention of one obvious possibility, the repayment of 137 billion euro LTRO funds to the ECB last Friday. Euro banks were parking funds in USD the only real liquid alternative.
The big mystery here is why is this a mystery? With Big Brother scrutinizing every transaction over $10k, there should be no question about where this money went.
Maybe the CIA emptied its black accounts so Timmeh had some cash during the debt ceiling fight.