Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

Fifteen years ago, there was less currency in the system. Yet, at the peak of the GFC in 2008, bank deposits fell by $70 billion. Interestingly, bank deposits have decreased by $862 billion since this Powell rate cycle began. We have you beaten by 12x GFC.

Tier 1 Alpha: Bank Deposits Drop Off 12x More Than GFC - bankdeposit

The primary beneficiary of these deposit outflows has been money market funds. Between the end of Q3 2022 and Q1 2023, these funds accumulated nearly $700 billion. We've emphasized how these shifts have especially strained regional banks. Though there haven’t been any massive bank failures recently, the underlying pressures persist.

The bank failure risks remain consistent. The Yield curve is notably inverted. FHLB advances as of the end of Q2 hovered around $900 billion. The BFTB, an emergency facility, keeps growing, now surpassing $108 billion, albeit at a decelerating pace. It's worth noting that these facilities don't come cheap; BTFB loans currently stand at 5.5%. Remember, it’s an emergency initiative.

While focusing on potential crises is tempting, there's a silver lining. Once the uncertainty dissipates, the significant liquidity in money market funds will be poised to flow back into risk assets.

Learn more about the Market Situation Report written by Tier 1 Alpha.