FOLLOWING “NEAR MONEY” SHOWS WHAT’S HAPPENING WITH QE2. Moebs Study Shows How Deposits Have Shifted and Stagnated Prompting the Fed to Pump Money into the Monetary System. 3/11/11

(Lake Bluff, IL) March 11, 2011 – The Amidst the inordinate amount of public emphasis and fear of excess money in the economy stemming from the Federal Reserve’s decision to initiate quantitative easing again (QE2), bank deposits have: Shifted significantly from certificate of deposits, to shorter term checking accounts, and have become stagnant. These numbers are reflected in the Flow of Funds Report issued by the Federal Reserve yesterday.

A decline in real money is a real fear
A new study by Moebs $ervices shows how this societal focus on money, or the asset side of the American Balance Sheet, has missed the real causes of concern – Banks rely on “Real Money,” or insured deposits and uninsured deposits at Money Market Mutual Funds, to lend to small businesses and create jobs.  

 “There have been dramatic shifts in deposits causing lenders to lend less and to only high quality borrowers,” said Michael Moebs, economist & CEO at Moebs $ervices. When banks and credit unions know their deposits are stable and will be around for many months they lend.  When money supply contracts for many months and/or moves to very short term deposits, as is the case, bankers stop lending because they are uncertain what the economy is going to do. “We found that Banks have restricted their lending due to this significant consumer shift towards short term deposits, and banks’ efforts to increase capital to asset ratios.”  

Deposits have shifted to checking and money market deposit accounts at financial institutions from traditional stable sources of retail CDs and Jumbo CDs.  The Money Market Mutual Funds have lost their uninsured deposits both retail and institutional to banks.  

Checking account deposits have increased for both interest and non-interest types from 5.2 percent in 2007 for both to 7.7 percent in 2010.  More significantly Money Market Deposit Accounts have gone from 33.5 percent in 2007 to 43.9 percent in 2010.  “This represents $1.48 trillion dollars in deposits shifting to Money Market Deposit Accounts,” stated Moebs. “This money has come from Money Market Mutual Funds who have lost $1.08 trillion dollars to the banks.  Even the very stable Ira & Keogh funds have left Money Market Mutual Funds, and have been absorbed up by banks and credit unions.”

Near Money is Stagnate Too
The total of insured and uninsured deposits has gone from $13.1 Trillion in 2007 to $12.3 Trillion at the end of 2010.  According to Moebs, “the overall monetary system is not just down $800 Billion in near money, but short an additional $2 trillion to maintain growth in the economy and population.”  “Banks and Credit Unions, especially the Main St. institutions, are being hammered by the FDIC to increase capital.  They do not want deposits and are actually shedding them to shrink their balance sheets and increase capital.  If not reversed, this will cause the ‘Great Recession’ to continue.”

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About Moebs $ervices
Since 1983, Moebs Services has been collecting primary empirical data about financial institutions’ services, pricing, operating expenses and financial condition and analyzing the data in a counter intuitive manner, which provides solutions that make sense.  For more info please visit www.moebs.com