Depositors are pulling billions of dollars out of the traditional banking system, according to a new report from the Federal Deposit Insurance Corporation (FDIC).
According to the agency’s new quarterly profile, domestic deposits fell by $197.7 billion in the second quarter of this year.
That’s a decline of 1.1% and a reversal from the first quarter, when U.S. banks witnessed a $190.7 increase in deposits.
The deposit flight comes as historic amounts of money continue to accumulate in money market funds, which in recent years have offered highly competitive rates compared to traditional bank savings accounts.
New figures from Federal Reserve Economic Data (FRED) show that the amount of capital invested in money market funds has increased to more than $6.54 trillion since June of this year, a number that has increased every quarter since the end of 2022.
Money market funds allow people to easily gain exposure to lower-risk, short-term debt securities, including U.S. Treasury bonds.
Investors began flocking to the funds in 2022, when the Fed began raising rates aggressively in an effort to quell rising inflation, sending short-term Treasury yields significantly higher.
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