We were startled by the huge media interest in a two-page draft memo from Bank of New York Mellon indicating that the bank will begin charging fees on "sudden, significant" increases in deposits. Why banks charging fees or passing through negative yields would be big news was confusing to us, but we're happy to take any good news for money funds we can get. (Though it's mixed news -- money funds should benefit from corporate and institutional money shifting towards funds, but they'll also lose their own "safe harbor".) Money funds already appear to be benefitting from this news as assets surged by $24.9 billion yesterday, according to our Money Fund Intelligence Daily. We quote some of the coverage below, and look for more news in our August Money Fund Intelligence which e-mails to subscribers later this morning.
The Wall Street Journal appeared to be the first to cover the BNY Mellon charge, writing, "BNY Mellon to Charge for Deposits Above $50 Million." It says, Bank of New York Mellon Corp. is preparing to charge some large depositors to hold their cash, in the latest sign of the worries roiling global markets. The biggest U.S. custodial bank said this week in a note to clients that it will begin slapping a fee next week on customers that have vastly increased their deposit balances over the past month. The bank cited the massive dollar deposits it has received over recent weeks, as investors and corporations retreat from financial markets amid Europe's debt crisis and the recent debate over U.S. government borrowing."
The Journal adds, "Over the past two weeks, money-market funds, corporate treasurers and investment houses have pulled money out of securities that mature in more than one day in favor of stashing their cash in accounts at Bank of New York and other custody banks like J.P. Morgan Chase & Co. These accounts earn no interest, but are insured by the Federal Deposit Insurance Corp. Bank of New York said that it will charge 0.13%, plus an additional fee if the one-month Treasury yield falls below zero on depositors that have accounts with an average monthly balance of $50 million "per client relationship," according to a letter reviewed by The Wall Street Journal."
Bloomberg, in "BNY Mellon to Charge for Large Deposits", says, "Bank of New York Mellon Corp. (BK), the world's largest custody bank, will charge institutional clients a fee for "extraordinarily high" cash deposits to stem a flight of capital into the safety of bank deposits.... The rising deposits at custody banks represent mostly 'hot money' and some banks have begun to pass on the burden of insuring it to their large, institutional investors, Joseph Abate, money-market strategist at Barclays Plc in New York, wrote in a note to clients."
The article quotes, "If other banks follow BNY Mellon's example, investors may shift some of their cash into money-market mutual funds, said Peter Crane, president of money-fund research firm Crane Data LLC in Westborough, Massachusetts. The funds have faced a challenge in past months in finding enough securities they are eligible to buy and without lowering their yield."
