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Quietly, U.S. and Foreign Banks Have Increased their Borrowings from U.S. Money Market Funds

Courtesy of Pam Martens

Barclays (Green), UBS (Red), Deutsche Bank (Blue) and Credit Suisse (Orange) -- Stock Price Over the Past Decade

Barclays (Green), UBS (Red), Deutsche Bank (Blue) and Credit Suisse (Orange) — Stock Price Over the Past Decade

By Pam Martens and Russ Martens

Memories are apparently very short at the Securities and Exchange Commission (SEC). The SEC seems to have forgotten that a run on money market funds holding bank commercial paper set off a panic after the Lehman Brothers bankruptcy filing on September 15, 2008. The government had to step in and guarantee the funds.

Despite those disastrous days, the SEC has allowed money market funds being sold in the U.S. to hold a staggering $642 billion in the instruments of foreign banks, as of September 30, 2019. It categorizes those instruments as: certificates of deposits, time deposits, sponsored asset-backed commercial paper, and repurchase agreements (repos) where the bank is the counterparty.

On top of the $642 billion in the instruments of foreign banks, the money market funds are holding another $292 billion in the instruments of U.S. banks, bringing the total bank exposure within money market funds to $934 billion or just shy of $1 trillion.

Just one year ago, on September 30, 2018, that exposure stood at $666 billion for U.S. and foreign banks, meaning that there has been a 29 percent increase in banks funding themselves through money market funds over the past 12 months.

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