Scottish podcaster and hedge fund manager Hugh Hendry recently shared his view on US banks amid ongoing turmoil in the financial sector.
In a new interview on Stansberry Research with Daniela Cambone, the hedge fund manager indicated that the Fed’s tight monetary policy increases the likelihood that bank clients will one day face withdrawal limits. He said the following:
“If we went back a year ago, the probability you would assign to that would be almost zero. And all I’m saying is that like mercury, probability is increasing.
Why is it rising? It’s rising because we’ve been through, I call it the Fed folly. In fact, it can be said that this Fed hike is the fastest and of the largest magnitude. They have never done this before…
We no longer live in an environment where it seems sensible to have all your money in the banking system, and certainly not in one lender.”
While blanket withdrawal limits have never been enforced in the United States, such restrictions were introduced in Greece and Cyprus during the mid-2010s debt crisis. In addition, cash withdrawal limits are currently in place in Nigeria, where individuals can receive 20,000 naira, worth about $45 dollars per week.
Hendry went on to state that US banks are likely to experience further deposit flight as we now live in a world where a customer can withdraw their money at the touch of a button.
He also pointed out that the Fed’s rate hikes over the past year have created an environment that makes it attractive for savers to take their money from banks and invest it in money market funds.
“A combination of being stuck with these very uncompetitive rates and now the tyranny that money can fly so fast… What money takes out is that the Fed is offering too much through the money markets. I mean, you could go straight to the Fed.
So what does the Fed do? It encourages more and more money to [banken] to leave.”
At the time of writing, the average annual rate of return (APY) in the US for savings accounts is 0.25%. Meanwhile, money market funds offer as much as 4.75% APY, closer to the Federal Reserve’s reference rate of 5% to 5.25%.