The Street Light has noted in recent days that European banks have been pouring money in recent months into American banks:
The cash assets (i.e. bank deposits) that foreign banks are keeping in the US banking system has risen sharply over the past 6 months — not coincidentally, by about $500 billion. Meanwhile, domestic US banks have started showing some similar tendency toward accumulating cash, but only to the tune of approximately $150 billion, and only over the past 2 months.
Recall from yesterday’s post that MFIs in Europe have drained their bank accounts at European banks by about €700 billion over the past year and half, which at current exchange rates is approximately $1 trillion. It seems that much of that money has recently found its way into the bank accounts that European MFIs keep in US banks. And conversely, it seems likely that the large inflow of cash deposits held at US banks this year is largely from European banks.
The post concludes: “If you’re wondering exactly who has been the first to lose confidence in the European banking system, look no further. It seems that at the forefront is the European banking system itself.”
This reminds me of the recent debate over the debt ceiling. Investors never feared default in any serious way or treasury yields would not have remained stable.
While there is obviously legitimate concern about the U.S. economy, about our own banking system, about individual banks, and so on, America — for better or for worse — is still routinely viewed as the country whose economy is most resilient and powerful.