Rich investors and family offices are reportedly shifting their money out of the bank following the failure of the Silicon Valley Bank (SVB), according to a cnbc.com story. Millionaire investors generally maintain money in their bank accounts, as well as millions of dollars in cash, to pay their bills and cover unforeseen emergencies. The research did note that these wealthy people are now keeping their money in Treasurys.
Treasurys and money markets now give about a 4% to 5% risk-free return, which is frequently double the interest on a savings or checking account due to the Federal Reserve’s quick rate hikes.
Rich individuals and family offices have been transferring all but a tiny fraction of their cash balances into investments that pay better yields than cash. Concerns about increasing rates and a probable recession have also caused a lot of large investors to start taking money out of stocks and other investments. In the meantime, central bank data revealed that several US banks had asked the Federal Reserve for unprecedented sums of emergency liquidity following the demise of Silicon Valley Bank and Signature Bank.
On Wednesday, banks had borrowed a record $152.9 billion from the Fed’s standard lender-of-last resort facility and $11.9 billion from its recently established Bank Term Lending Program.
The central bank’s entire balance sheet exploded by about $300 billion in the previous week, including more than $140 billion in additional funding given to the new bridge banks for Silicon Valley Bank and Signature Bank formed by the Federal Deposit Insurance Corp. That effectively undoes the majority of the balance sheet reduction made since last summer. The bankruptcy of the local financial institution Silicon Valley Bank on Friday and subsequently the failure of Signature over the weekend shook the markets, which led to the establishment of the bank lending facility on Sunday amid extremely uneasy conditions.
In contrast to previous Fed lending initiatives that imposed restrictions on the lending, the new Fed facility will permit a variety of banks and other qualified businesses to borrow against Treasury securities, mortgage-backed securities, and other qualified collateral at the face value of the collateral. For a period of up to a year, businesses can borrow money at a cost equal to the one-year overnight index swap rate + 10 basis points. The Exchange Stabilization Fund of the Treasury Department provides a $25 billion guarantee for the bank lending facility.
