2a7 money market mutual fund reform continues to cause short-term liquidity outflows. Last month (June), $110B flowed out of money market funds and into other short-term investments. During this time, the average maturity of these money market funds shortened from 29 days to 24 days. Further, the short-term part of the yield curve decreased and flattened. Why would a bank care?
Money coming out of mutual funds represents a potential source of deposits. These outflows are occurring for retail accounts but mostly corporate accounts. Bank certificates of deposits and money market funds represent a more competitive alternative than ever before due to the three forces described above.
Every bank should be having a liquidity conversation with their retail, small business and corporate accounts to see if it can build balances.
Submitted by Chris Nichols on July 11, 2016