The Federal Deposit Insurance Corporation published its latest "Quarterly Banking Profile" last week (see the release here), which reviews Q2 statistics on the banking industry in the U.S and shows a huge jump in deposits and drop in bank net interest margins. It states, "Net interest income was $131.5 billion in second quarter 2020, down $7.6 billion (5.4 percent) from a year ago. This marks the third consecutive quarter that net interest income declined on a year-over-year basis. Most of the decline was driven by the three largest institutions, as less than half (42.2 percent) of all banks reported lower net interest income from a year ago. The average net interest margin (NIM) for the banking industry declined below the 3 percent level, or down 58 basis point from a year ago to 2.81 percent."

They explain, "This is the lowest NIM ever reported in the Quarterly Banking Profile (QBP). The NIM compression was broad-based, as it declined for all five asset size groups featured in the QBP. The decline in NIM was caused by asset yields declining at a faster rate than funding costs, as low yielding assets grew substantially."

The FDIC update continues, "Total deposit balances increased by $1.2 trillion (7.5 percent) from the previous quarter. Noninterest-bearing account balances rose by $637 billion (17.7 percent) and interest-bearing account balances rose by $575.3 billion (5.4 percent). Nondeposit liabilities declined by $330.9 billion (14 percent) from the previous quarter. The decline in nondeposit liabilities was attributable to lower Federal Home Loan Bank advances, which fell by $234.1 billion (38.2 percent). Over the past 12 months, total deposits rose by $2.9 trillion (20.8 percent), led by the increase of $2.4 trillion in the last two quarters."

It adds, "The number of FDIC-insured commercial banks and savings institutions reporting declined from 5,116 to 5,066 during second quarter 2020. One new bank was added, 47 institutions were absorbed by mergers, and one bank failed. Additionally, three institutions, who did not report this quarter, sold a majority of their assets and are in process of ceasing operations. The number of institutions on the FDIC's 'Problem Bank List' declined from 54 in first quarter 2020 to 52, falling to near historic lows. Total assets of problem banks increased from $44.5 billion to $48.1 billion."

The Wall Street Journal comments, in "Coronavirus Has Left Banks With Lots of Cash and Little to Do With It," that, "The coronavirus threw the U.S. banking system into extreme gyrations. The normally unexciting quarterly industry report from the Federal Deposit Insurance Corp., released last week, showed in stark detail how the pandemic is ensnaring banks big and small. Profits tumbled as the banks put aside billions for loan losses. Margins hit an all-time low. Fee income hit a record high. Customers flooded banks with more deposits than they had ever seen, so much so that the nation's safety net for bank failures fell below a legal limit."

The article tells us, "Banks were whacked with the lowest lending margin in the history of the FDIC's data, which goes back to 1984. The average net interest margin, the difference between what the banks make on loans and pay out on deposits, shrank to 2.81% compared with 3.39% a year ago. The Federal Reserve slashed interest rates to near zero in March, and emergency cuts hit income faster than the banks could reduce their deposit costs."

It explains, "For the second quarter in a row, deposits increased by more than $1 trillion. There has been $2.4 trillion added in six months, five times any other six-month period, and roughly equal to the deposits of the entire industry in 1984. The big four banks have taken in $900 billion of the year's gains."

The Journal adds, "Corporate customers have loaded up with cash to backstop their businesses through a long slowdown. Consumers with nowhere to go have slowed spending and received stimulus checks and increased unemployment assistance. The surge was so quick that the FDIC insurance fund fell to just 1.3% of all deposits, breaching its legal requirement of holding enough to cover 1.35% of all deposits. The agency expects the deposits to normalize and said the fund would self-correct."

Crane Data's latest numbers show that money market fund yields continue to bottom out just above zero; our flagship Crane 100 was down a basis point in the last week to 0.05%. The Crane 100 Money Fund Index fell below the 1.0% level in mid-March and below the 0.5% level in late March. It is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. Just over two-thirds all money funds and over a third of MMF assets have since landed on the zero yield floor.

According to our Money Fund Intelligence Daily (as of Friday, 8/28), 595 funds (out of 854 total, or 69.7%) currently yield 0.00% or 0.01%, with assets of $2.006 trillion, or 41.0% of the $4.895 trillion total. There are 178 funds yielding between 0.02% and 0.10%, totaling $2.135 trillion, or 43.6% of assets; 75 funds yielded between 0.11% and 0.25% with $665.4 billion, or 13.5% of assets; only 6 funds yielded between 0.26% and 0.50% with $89.0 billion in assets. No funds yield over funds yield over 0.50%.

The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 675), shows a 7-day yield of 0.03%, unchanged in the week through Friday, 8/28. The Crane Money Fund Average is down 44 bps from 0.47% at the beginning of April. Prime Inst MFs were down a basis point to 0.08% in the latest week and Government Inst MFs were flat at 0.03%. Treasury Inst MFs were unchanged at 0.02%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.01% (unchanged in the last week), and Prime Retail MFs yield 0.04% (unchanged), Tax-exempt MF 7-day yields were also flat at 0.02%. (Let us know if you'd like to see our latest MFI Daily.)

Our Crane Brokerage Sweep Index, which hit the zero floor four and a half months ago, remains at 0.01%. The latest Brokerage Sweep Intelligence, with data as of August 28, shows no changes in the last week. All of the major brokerages now offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last 19 weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, RW Baird, Schwab, TD Ameritrade, UBS and Wells Fargo all currently have rates of 0.01% for balances at the $100K tier level (and almost every other tier too).

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