Flight to Money Funds Is Adding to the Strains on Small Banks

April 01, 2023

The turmoil has underscored that there are other places people and companies can park their spare cash and get a better interest rate. Money funds park cash in short-term instruments, such as Treasury bills or repurchase agreements, and pass on what they earn to investors. Though the immediate anxiety about more bank failures has eased, investors have continued to pump cash into money funds, pushing some $66 billion into US money funds in the week ending March 29, according to the Investment Company Institute. Community and regional banks are crucial lenders to individuals and small businesses far removed from the biggest, wealthiest US cities. The same can be said of mortgages and other loans banks made when customers who were eager to lock-in low rates opted to borrow.