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IMF warns for stability risk.

 

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The recent bank­ing industry tur­moil has increased the risks to fin­an­cial sta­bil­ity; the IMF has warned, as investors seek­ing safety pile hun­dreds of bil­lions of dol­lars into money mar­ket funds. IMF's managing director Kristalina Geor­gieva said, «Risks to fin­an­cial sta­bil­ity have increased at a time of higher debt levels,». «The rapid trans­ition from a pro­longed period of low-interest rates to much higher rates neces­sary to fight infla­tion inev­it­ably gen­er­ates stresses and vul­ner­ab­il­it­ies, as we have seen in recent devel­op­ments in the bank­ing sec­tor». That makes it the biggest month of inflows since the depths of the Covid-19 crisis.

The surge helped push over­all assets in money funds to a record $5.1tn last week, accord­ing to research from Bank of Amer­ica. Gold­man's US funds had taken in nearly $52bn, a 13 per cent increase, since March 9, the day before SVB was taken over by US author­it­ies. JP Mor­gan's funds received nearly $46bn, and Fidel­ity recor­ded inflows of almost $37bn, accord­ing to iMoneyNet data as of Fri­day. Money mar­ket funds typ­ic­ally hold very low-risk assets that are easy to buy and sell, includ­ing short-dated US gov­ern­ment debt.

The pace of inflows has par­tic­u­larly increased from large depos­it­ors look­ing for safe havens.

Data from the Invest­ment Com­pany Insti­tute showed that the money is flow­ing spe­cific­ally into funds that hold US gov­ern­ment debt, which are con­sidered the safest des­tin­a­tions. Neel Kashkari, pres­id­ent of the Min­neapolis Fed, said yes­ter­day that the bank­ing sec­tor stress «brings the US closer to a reces­sion» but it was «not clear whether there will be a wide­spread credit crunch that would slow down the eco­nomy».

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  1. Jerry27 March 2023 at 11:56

    Even if the US economy is slowed down this won't last long and won't be as bad as it is in other countries. The US economy is very strong and it always comes back fighting and does it quickly. So even if the US will enter a recession in the next 6-12 months it will still do better than most places.

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