Will You Move Your Cash to Money Funds?

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Will You Move Your Cash to Money Funds?

The Wall Street Journal reported yesterday that Blackrock and Federated are prepping for large inflows of cash fleeing bank deposit accounts that no longer enjoy an unlimited FDIC guarantee in the new year. The implications range from further depressing yields on cash investments to funds barring new entrants.

If the influx is large enough, BlackRock and Federated have told investors, some money-market funds could be closed to new entrants, said people familiar with the conversations.

In October, we asked members of our Tech20 Treasurers' Peer Group what their plans would be if the unlimited FDIC guaranteed was not renewed, with the added context that money market reforms might make traditional money funds less enticing. Their response indicated a split opinion:

  • 42 percent would leave deposits where they are, given that they had already filtered deposit banks for counterparty risk and bank risk generally has declined, but
  • 32 percent indicated that they would shift some deposits to "safer" banks
  • 42 percent indicated they would move funds into other assets, including self-assembled money fund equivalents (a popular alternative for cash-rich tech companies with sophisticated investment acumen)
  • 32 percent, however, also indicated they would shift some funds to traditional MMFs.

These results may give some color to how the top end of the roughly 1.7 trillion in bank deposits will flow. If money funds don't accept new money, then the percentages for leaving deposits where they are or shifting them to "safer" banks will increase, but it will also inrease the percentage that shift funds into other assets, including bespoke and self-assembled money fund equivalents. Some say this last result is the intent of MMF reform, and it would appear that closing funds to new entrants merely supports the intended outcome.

How will these developments affect your plans?