Financial disintermediation has always been an important topic for financial institutions, but it has not been the focus of research when rates were close to zero. There was disintermediation from the reach for yield, so depositors kept balances low. For their liquid funds, there was not a lot of shopping for higher rates, because all rates were low. There was not advantage of moving to a money market funds because the excess yield was limited, and the absolute yield was low.
Go to the pandemic and the world changed. First, deposits exploded given all the extra money in the economy. Banks could not lend the money and yields were low. However, inflation grew, and the Fed started to raise rates. It is now very rational to shop your deposits to higher yielding alternatives.
Depositors will shop for higher yields at other institutions. They will shop at money market funds. They will use their excess balances for purchases. The result is a decline in deposits which means that something must happen on the other side of the balance sheet. Assets must be sold.
Banks that are not competitive with rates on deposits will see disintermediation. Firms with excess deposit balances will be drawing them down. If asset liability management has a gap, there will be a real cost to equity. We have seen the extremes with several banks, but this is a global problem.
No comments:
Post a Comment