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Where Are Americans Parking Money? ETFs in Focus
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During the second quarter, a significant shift in deposit trends has occured in the American banking industry, with regional banks gaining ground over their larger counterparts. JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo, the four largest banks by assets, experienced a net decline of $262 billion in deposits compared to the previous year per a Yahoo Finance article.
Then where are Americans parking their money? And why?
Regional Banks
The U.S. regional banking crisis in Q1 is known to all due to the failure of three banks. Buy in Q2, many regional banks witnessed their deposits grow during the same period, and this turnaround was met with investor approval, leading to an uptick in their stock prices over the past two weeks.
Regional banks like Western Alliance and Zions experienced 7% growth in deposits, while others like First Horizon and Comerica saw gains of 6.4% and 2%, respectively. The primary reason behind the deposit divergence is that regional banks now find themselves in greater need of deposits compared to the larger banks, and they are willing to offer higher interest rates to attract them.
After all, big banks have the power to offer low rates for consumers’ deposits. Their ability to weather such withdrawals is being attributed to their “scale, pricing power, and diverse funding sources.” The trend has continued into the third quarter, with deposits at the largest U.S. banks falling by $78 billion during the first week of July, marking the most significant decline since the peak of the regional banking crisis.
SPDR S&P Regional Banking ETF KRE and Invesco KBW Regional Banking ETF KBWR are two ETFs that can be tapped now on the recent trend shifting in the banking industry.
Money Market Instruments
Some customers have been avoiding the banking system altogether and moving their money to U.S. money market funds in quest of higher yields. U.S. money market funds saw net inflows of $623 billion, a substantial portion of which occurred during March and May 2023. As the Fed started to raise interest rates to cool the economy, depositors started searching for higher-yield options.
JPMorgan Ultra-Short Income ETF JPST, First Trust Low Duration Strategic Focus ETF LDSF and Arrow Reserve Capital Management ETF ARCM offer 3.61%, 3.58% and 2.65% yield, respectively.
SPDR S&P Regional Banking ETF (KRE): ETF Research Reports
Invesco KBW Regional Banking ETF (KBWR): ETF Research Reports
Arrow Reserve Capital Management ETF (ARCM): ETF Research Reports
JPMorgan Ultra-Short Income ETF (JPST): ETF Research Reports
First Trust Low Duration Strategic Focus ETF (LDSF): ETF Research Reports
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This article originally appeared on Zacks
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