While the Fed's "shock and awe" emergency intervention late on Sunday failed to boost confidence and, on the contrary, resulted in a record long limit-down halt in S&P futures, central bankers will find at least some delight in that so far the bad news has been confined to the relentless liquidation in financial assets, while depositor confidence in their friendly, neighborhood bank has been unshakeable.
Alas, in Austria - the country whose infamous Rothschild-owned Creditanstalt Bank sparked the Great Depression - depositors are starting to get that joggy feeling.
Speaking to journalists in Vienna, central bank governor Robert Holzmann said that Austrians have been far more active in pulling money from their banks, and have withdrawn more cash from ATMs last week, double to triple the normal average daily volume of €200MM.
However, hoping to forestall a full blown bank-run, Holzmann said that the central bank has enough cash reserves for ATMs, companies, banks, that "deposits are safe because banks have made homework, built capital reserves", and that he "doesn’t expect a bank run."
Of course, that's precisely what he would say as he sought to restore the public's confidence that there is enough moneey for everyone.
Meanwhile, in the US, eager to avoid any such discussion, US Treasury Secretary Steven Mnuchin told CNBC that "nobody has to pull money out of banks." Translation... well, it's self-explanatory.
Perhaps a bank run in the US can be avoided, although if the ongoing - and quite poetic - toilet paper run is any indication, US depositors will soon shift their attention to that other "paper", but a greater concern is whether the Fed can prevent a money market fund run. As we explained yesterday, the one facility the Fed had to announce yesterday, a Commercial Paper backstop was strangely missing. This is a problem as BofA's Marc Cabana explained:
The current concern is that if the CP market is frozen, prime MMF could see their weekly liquid assets fall below 30% as they experience outflows. If weekly assets fall below 30% this would need to be reported to the SEC, would be in the public domain, and could result in a liquidity fee. Such a drop in liquidity would like result in a run on the MMF which experienced a drop in their liquidity and could result in a run on the prime MMF industry more broadly. This type of run would then result in more forced liquidations which would worsen CP liquidity, increase front-end credit spreads, and weigh on market sentiment. We strongly suspect the Fed wants to avoid this.
The Fed certainly wants to avoid this, but it also hoped that by cutting rates by 100bps and launching $700BN in QE it would not be an issue. Whether that very critical assumption is accurate will be revealed at some point today...