Reserve Requirements
As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
Effective for the reserve maintenance period beginning March 26, 2020, the 10 percent required reserve ratio against net transaction deposits above the low reserve tranche level was reduced to 0 percent, the 3 percent required reserve ratio against net transaction deposits in the low reserve tranche was reduced to 0 percent. The action reduced required reserves by an estimated $200 billion.
The Federal Deposit Insurance Corporation said on May 31 that a total of $472 billion was taken out of the American banking system in the first quarter of 2023. This is the highest sum taken out of American banks since the FDIC began keeping track of such information in 1984.
Since the bankruptcies of Silicon Valley Bank and Signature Bank earlier this year caused industry instability and the seizure of First Republic Bank in May, the most recent information from the FDIC provides a picture of the health of the banking sector.
Inflation, rising rates, and economic pressure continue to pose dangers to the industry, particularly in areas like commercial real estate, according to FDIC Chairman Martin Gruenberg.
There are many other options for parking your extra cash if you prefer to remove it from banks. Here are the top three places, if you are not going to stuff it under your mattress.
Real estate
The real estate industry is not without its risks. According to CommercialEdge’s National Office Report for May 2023, the national office vacancy rate has reached 16.7%. According to Redfin, the number of new home sale listings fell to their lowest point in any early June in history.
But for investors, some less obvious real estate possibilities might be safer. For instance, the present development in artificial intelligence technology, according to JLL, a global provider of real estate services, will increase demand for data centers.
In 2023, funds targeted at such specialized areas of the real estate market might be a desirable investment.
Gold
During inflationary waves, gold typically performs well. Because this reliable asset is widely seen as a safe haven, even central bankers stockpile it during uncertain economic periods. According to Bloomberg, the People’s Bank of China has been increasing its gold holdings for months.
Because it serves as a reserve asset, gold is a secure place to keep money. Investors who are concerned about rising interest rates or inflation may want to think about increasing their exposure to precious metals.
Bond exchange-traded funds (ETFs)
Interest rates that are rising quickly are terrible for borrowers but great for lenders. The current interest rate on a 10-year US Treasury bill is roughly 3.7%. To put it another way, the American government is providing a high-yield investment with virtually no risk.
However, corporate bond yields are higher if you’re willing to take some risk. The 30-day SEC yield for the iShares 1-5 Year Investment Grade Corporate Bond ETF is approximately 5.28%. In order to maintain their purchasing power, investors may add funds to similar bond funds.
High-yield corporate bonds are another option to consider. Although these bonds carry more risk, they also provide bigger rewards. For instance, the 30-day SEC yield on the iShares iBoxx $ High Yield Corporate Bond ETF is approximately 7.99%, which is much higher than the current rate of inflation. Of the three options, gold and land the two that to always be the hedge that holds no matter the politics, market chatter, value of digital or fiat currencies. All are better than stuffing it under your mattress.
