After SVB's collapse wealthy investors move away from banks, invest cash HERE
1 min read 17 Mar 2023, 12:15 PM ISTSeveral US banks sought record amounts of emergency liquidity from the Federal Reserve over recent days in the wake of the failure of Silicon Valley Bank
PremiumAfter the collapse of the Silicon Valley Bank (SVB), wealthy investors and family offices are moving their cash out of the bank, according to a report by cnbc.com.
High net-worth investors typically keep millions of dollars, including cash in their bank accounts to cover bills and unexpected expenses. However, the report mentioned that these wealthy individuals are now parking their cash into Treasurys.
With the rapid Federal Reserve hikes, Treasurys and money markets offer around a 4% or 5% risk-free return---often double the yield on a savings or checking account.
Wealthy investors and family offices have been moving all but a small portion of their cash balances into higher-yielding cash-like investments. Many big investors have also started to pull money out of stocks and other investments due to concerns over rising rates and a potential recession.
Meanwhile, central bank data showed that several US banks sought record amounts of emergency liquidity from the Federal Reserve over recent days in the wake of the failure of Silicon Valley Bank and Signature Bank.
Banks took a record $152.9 billion from the Fed's traditional lender-of-last resort facility as of Wednesday, while also taking $11.9 billion in loans from the Fed's newly created Bank Term Lending Program.
Including more than $140 billion in other funding provided to the new bridge banks for Silicon Valley Bank and Signature Bank established by the Federal Deposit Insurance Corp, the central bank's total balance sheet mushroomed by roughly $300 billion in the last week. That reverses a substantial portion of the balance sheet reduction accomplished since last summer.
The bank lending facility was launched on Sunday amid highly unsettled markets, rattled by the failure of regional financial firm Silicon Valley Bank on Friday and then Signature over the weekend.
The new Fed facility will allow a range of banks and other eligible firms to borrow against Treasuries, mortgage back securities, and other eligible collateral at the face value of the collateral, breaking from other Fed lending efforts that put penalties on the lending. Firms can do this for up to a year at a borrowing cost of the one-year overnight index swap rate plus 10 basis points.
The bank lending facility is backstopped by $25 billion from the Treasury Department’s Exchange Stabilization Fund.
