The divergence between the Fed funds rate and interest rates on checking accounts is the fundamental reason why money is being moved out of bank deposits and into higher-yielding investments, including money market accounts, see charts below. Higher rates as a source of instability for deposits and Treasury holdings are highly unusual compared to previous banking crises, where the source of instability has typically been credit losses putting downward pressure on the illiquid side of banks’ balance sheets.
Source: FRB, RateWatch, Haver Analytics, Apollo Chief EconomistSource: Bloomberg
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