The BNY Mellon apparently does not want money, not to lend, not at all. In a mad dash for cash Mellon has been flooded with it. Overnight lending rates went negative.
Bank of New York Mellon Corp. is preparing to charge some large depositors to hold their cash, in the latest sign of the worries roiling global markets.
The big U.S. custodial bank said this week in a note to clients that it will begin slapping a fee next week on customers that have vastly increased their deposit balances over the past month.
The bank cited the heavy dollar deposits it has received over recent weeks, as investors and corporations retreat from financial markets amid Europe’s debt crisis and the recent debate over U.S. government borrowing.
BNY Mellon’s decision sent money-market mutual funds and financial institutions scrambling to put their cash to work in short-term markets Thursday, sending rates falling across many investments. Treasury bill prices rose, pushing down their yields down sharply, and interest rates on overnight securities repurchase, or repo, agreements tumbled.
The cost of borrowing overnight in this market tumbled below zero Thursday, after starting the day at around 0.08%.
BNY Mellon said that it will charge 0.13% plus an additional fee if the one-month Treasury yield dips below zero on depositors that have accounts with an average monthly balance of $50 million “per client relationship,” according to a letter reviewed by The Wall Street Journal. The charges will take effect on accounts held on Aug. 8, and will be charged in the subsequent billing cycle.
The torrent of cash looking for a safe place continues to grow. The Bank of Japan this week intervened in currency markets, essentially printing yen and buying dollars. “Those dollars need to find a home and it’s probably going to come to the Treasury market,” BofA Merrill Lynch’s Mr. Smedley said.
Everyone Hoarding Cash
Everyone is looking to hoard cash. Let me ask a simple question.
Does this happen in hyperinflation or does it happen in deflation?
In its grand QE experiment the Fed pushed rates to zero, flooded the world with cash, then expected banks to lend and businesses to expand. Did it work?
Clearly not. No one wants to put that cash to use. If you were a business would you be hiring here? I wouldn’t, and neither are businesses. Instead cash sits in banks or short-term treasuries earning zero or even negative percent.
When was hyperinflation supposed to start?
Oh, I just remembered: 2011, a year chosen by at least a couple people. Others expect it next year.
Hyperinflationists simply do not understand the role of credit in a global economy. China has a huge inflation problem and various property bubbles because credit growth is soaring 30% annually.
In the US, banks want credit-worthy borrowers. However, credit-worthy borrowers are parking cash, not asking for more of it.
Mike “Mish” Shedlock
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