Finance
Banks Fearing a Liquidity Crunch Pay More to Cling to Cash
- BofA says banks seek ‘extra buffer’ in case deposits leave
- Large time deposits have risen $675 billion since June 2022
In the 18 months since the central bank started hiking interest rates, cash has been flowing out of the banking system in search of higher-yielding alternatives.
Photographer: Andrew Harrer/Bloomberg
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Banks are paying up to protect their cash holdings from sinking further and to safeguard against future runs on deposits, according to Bank of America Corp.
Big and small institutions alike started doing this even before the turmoil in the US banking system in March, said strategists Mark Cabana and Katie Craig. Data show large time deposits — or certificates of deposit issued in amounts greater than $100,000 — have risen by about $675 billion since the beginning of the Federal Reserve’s balance sheet unwind in June 2022.