Bank Bailout Facility Usage Rises First Time Since SVB, MM Fund Outflows Soar

After last week saw The Fed's balance sheet shrink significantly back from its bank-bailout resurgence, all eyes will be back on H.4.1. report this evening to see if things have continued to 'improve' or re-worsened amid regional bank shares unable to bounce above post-SVB lows ahead of earnings.

In a big surprise, this week saw a $68 billion OUTFLOW from Money Market funds - the largest since July 2020 (after $380 billion of INFLOWS over the previous five weeks)...

Source: Bloomberg

The breakdown was $58.9 billion from Institutional funds and $9.72 billion from retail funds.

That pulled assets from their $5.277 trillion record high and suggests last week's deposit INFLOWS may be about to accelerate - good news for banks?

Source: Bloomberg

Added to last week's deposit inflows, this suggests - in the short-term - the banking crisis is easing (at least in the minds of investors).

However, it's never that easy, as BofA noted earlier, it's that time of year again when corporations pull cash from MM funds to pay taxes.

In 2022, the 3rd week of April saw $41.6bn of institutional outflows from MM funds. In 2021, the same period was institutional outflows of around $19.6 billion. 2020 was a COVID shitshow, but 2019 saw a $42.3 billion withdrawal.

So this year's $59.8 billion institutional outflow is significant in its size compared to the last few years (but the seasonal tax-driven nature of the outflow should counter any over-excitement for now).

Though not wanting to piss all over those hopeful fireworks, we note that reverse repo continues to rise...

Source: Bloomberg

The most anticipated financial update of the week - the infamous H.4.1. showed the world's most important balance sheet shrank for the 4th straight week last week, by $21.5 billion, slightly more than last week's tumble (helped by a $17bn QT)...

Source: Bloomberg

Looking at the actual reserve components that were provided by the Fed, we find that Fed backstopped facility borrowings ACTUALLY ROSE last week from $139 billion to $144 billion (still massively higher than the $4.5 billion pre-SVB)...

Source: Bloomberg

...but the composition shifted, as usage of the Discount Window rose by $1.6 billion to $69.9 billion (upper pane below) along with a $2.1 billion increase in usage of the Fed's brand new Bank Term Funding Program, or BTFP, to $73.98 billion (middle pane) from $79.0 billion last week. Meanwhile, other credit extensions - consisting of Fed loans to bridge banks established by the FDIC to resolve SVB and Signature Bank were unchanged at $173BN (lower pane)...

Scanning down the H.4.1, we note that Foreign repo was down $10BN to $20BN (though it is still troubling that some bank still needs this much USD) and Other Fed Assets rose $2.2 billion (after falling last month)...

With the MM outflows, deposit inflows, and Fed balance sheet shrinking again, it appears the 'banking crisis' is over... and with it goes the hopes for equity bulls that The Fed will ease away from its inflation mandate... be careful what you wish for here as with clarity comes fortitude and The FedSpeak recently has almost all sung from the same hymnal - higher for longer, inflation still too high... not the massive loosening-fest the market is hoping for in H2 2023.

We will simply have to wait and see to know if these outflows are "real" of simply the usual tax-driven withdrawals.