Bank Depositors Fleeing Low Yields AND Solvency Problems

Silver led precious metals markets higher last week.

Safe-haven demand remains strong despite the rally in stock prices. There are lingering concerns among many investors about the economic outlook and the troubles in the banking sector are not likely over.

The U.S. dollar ended lower on the week while yields on the 10-year Treasury moved higher. Meanwhile, the ongoing flight of depositors remains a problem for banks.

The trouble began a few weeks ago when concerns over solvency at some small and regional banks prompted depositors to move funds to larger banks designated too big to fail. The FDIC and the Fed expanded deposit guarantees and added emergency liquidity.

A couple weeks have now passed since the last bank failure. Depositors continue withdrawing funds, however.

The impetus is now just as much about obtaining a reasonable yield as is concerns about bank solvency. Hundreds of billions of dollars are pouring into money market funds, where depositors can get yields on their money multiple times what is available in their bank’s deposit accounts.

Losing depositors due to paltry yields could lead to even more problems for the troubled banks.

Absent a complete reversal in monetary policy and a push back toward zero percent interest rates, the banks are going to have a very hard time competing.

Another wave of bank failures may not be far away.

Demand for physical bullion continued at a record high pace last week. Investors who have not been lulled to sleep by recent assurances from Janet Yellen and the rally in stocks are preparing for more trouble ahead.

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