Yields inched lower for money funds, but were flat for brokerage sweeps and bank deposits in the latest week. Rates should begin moving lower again in earnest in coming days as the money markets digest today's surprise 50 basis point rate cut. Our Money Fund Intelligence Daily shows the flagship Crane 100 MF Index down a basis point to 1.41% (as of Friday, Feb. 28) and our broader Money Fund Average down one bps to 1.29%. The Crane 100 is down from 1.81% on Sept. 30 and down from 2.18% on June 30. It is down 82 bps from the beginning of 2019 (2.23%), but up from its near low of 0.06% ten years ago (12/31/09). Given the Federal Reserve's big (50 bps) cut today, money fund yields should immediately begin reflecting the new lower levels. It normally takes a month to fully reflect any Fed move, and yields should begin falling hard in coming days as the money markets react to Tuesday's cut.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data, shows a 7-day yield of 1.29%, down a basis point in the week through Friday, Feb. 28. Treasury Inst MFs and Prime Inst MMFs were down a basis point each at 1.32% and 1.50%, respectively. Government Inst MFs remained flat at 1.38%. Treasury Retail MFs currently yield 1.05%, (down 0.01%), Government Retail MFs yield 1.07% (unch.), and Prime Retail MFs yield 1.31% (down a basis point), Tax-exempt MF 7-day yields increased 0.01% to 0.74%.
Crane's Brokerage Sweep Index remained flat at 0.14% in the week ended February 28 (for balances of $100K. The average sweep rate has been flat all year so far in 2020, but is down 14 bps from the end of 2018 (0.28%) and up 9 bps from ten years ago (0.05%). E*Trade and TD Ameritrade currently have the lowest rates for balances at the $100K level (0.01%). Meanwhile, Fidelity continues to have the highest sweep rate (0.82%). (Fidelity also has a higher-yielding money fund option for new accounts.) Morgan Stanley is paying 0.03%. UBS, Merrill, Raymond James and Wells Fargo are all paying 0.05%, and Schwab is paying 0.06%. Ameriprise is paying 0.08% and RW Baird is paying 0.33% for balances of $100K.
While many expected to see assets jump given last week's market volatility, we didn't see anything of note. (Money funds aren't really used as brokerage "sweeps" any more; almost all brokerages sweep to bank deposits now.) Our MFI Daily, with data as of February 28, shows money fund assets have risen $617 million over the past week to $3.966 trillion. Prime assets were down $19.1 billion while Government assets were up by $21.4B. Tax-Exempt MMFs decreased $1.7 billion. The MFI Daily also shows money fund assets up $40.1 billion for the month of February to $3.966 trillion. Prime assets are up $7.4 billion MTD, while Government assets are up by $33.7B. Tax-Exempt MMFs decreased $1.1 billion. Prime and Government MF assets were up $378.7 billion and $492.6 billion in 2019, respectively.
For more on "sweeps", see our latest Brokerage Sweep Intelligence, or see these Crane Data News articles: Sweeps Big Part of Morgan Stanley, E*Trade Purchase; Rates Flat Again (2/25/20), N-MFP Holdings Shows MMF Assets Hold Above $4.0 Trillion; Sweeps Flat (2/11/20), Concerns Remain about Brokerage Cash Says Investment News; Sweeps (2/4/20), FINRA Fallout: More on Sweeps, Fin-Tech Cash Accounts by ignites, FP (1/22/20), Finra Latest To Scrutinize Sweeps (1/15/20), Ignites on UBS Sweep Changes (12/9/19), More on Regulators and Sweeps (11/25/19) and SEC Warns on Cash Sweeps (11/12/19).
In related news, the Federal Deposit Insurance Corporation published its latest "Quarterly Banking Profile," which reviews the fourth quarter of 2019 in the banking industry in the U.S. A press release entitled, "FDIC-Insured Institutions Reported Net Income of $55.2 Billion in Fourth Quarter 2019," states, "For the 5,177 commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC), aggregate net income totaled $55.2 billion in fourth quarter 2019, a decline of $4.1 billion (6.9 percent) from a year ago. The decline in net income was led by lower net interest income and higher expenses. Financial results for fourth quarter 2019 are included in the FDIC's latest Quarterly Banking Profile."
The release tells us, "Net Interest Margin Declined from a Year Ago to 3.28 Percent: The average net interest margin declined by 20 basis points from a year ago to 3.28 percent. Net interest income fell by $3.4 billion (2.4 percent) from a year ago. This was the first annual decline since third quarter 2013. Lower yields on earning assets drove the reduction in net interest income."
FDIC Chairman Jelena McWilliams comments, "The banking industry remains strong, despite declines in full-year and quarterly net income. Loan balances continue to rise, asset quality indicators are stable, and the number of 'problem banks' remains low. Community banks reported another positive quarter. Net income at community banks improved because of higher net operating revenue, and the annual loan growth rate at community banks exceeded the overall industry."
She adds, "During the second half of 2019, we saw three reductions in short-term interest rates and yield-curve inversions. These factors present challenges for banks' credit extension and funding. It is vital that banks maintain careful underwriting standards and prudent risk management in order to maintain lending through economic fluctuations."
The full "Quarterly Profile" report adds, "Total deposit balances increased by $258.4 billion (1.8 percent) from the previous quarter, as interest-bearing accounts rose by $216.3 billion (2.2 percent) and noninterest-bearing accounts grew by $22.6 billion (0.7 percent). Deposits held in foreign offices increased by $19.5 billion (1.5 percent)."
Finally, it states, "Nondeposit liabilities, which include fed funds purchased, repurchase agreements, Federal Home Loan Bank (FHLB) advances, and secured and unsecured borrowings, fell by $69 billion (5 percent) from the previous quarter. The change in nondeposit liabilities Insured Institutions was led by a decline in securities sold under agreements to repurchase (down $30 billion, or 13.3 percent), the largest quarterly dollar decline since fourth quarter 2013. FHLB advances were lower by $16.3 billion (3.3 percent)."
