Will Brokerages Get Hurt By "Bankerage" Cash Sweep, ABS Arbitrages? Until 2007, "bankerage", or brokerages launching FDIC-insured deposit programs, had been a hot trend in the money markets. However, the sharp climb in money fund yields -- the Federal funds target rate rose from a record low of 1% in mid-2004 to 5.25% -- has been taking market share back from these programs. Money market funds at 5% pay almost double FDIC-insured sweeps, which average rates of 2.65%. Now comes a potential disaster on the reinvestment side. While extremely profitable for a time, bankerages are now likely facing declining values in mortgage portfolios or major issues with baskets of asset-backed securities. ABS with 2-3 year maturities, which U.S. money funds can't buy buy which European ones sometimes do, were often used to make a "safe" spread on the reinvestment proceeds of investor sweep cash. See our upcoming September Money Fund Intelligence for more.

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