Banker Update: The Fear Factor

The banker I quote below emails me this afternoon:

We actually cut off out of state money today. No sense in letting unwanted money drag down our earning stats.

This broker gave us actually $2.5 million for a 6 month CD—the latest 26 week T-bill pays around 19 bps, so she’s making a killing of 46 bps for the same level of risk. What she is not doing is buying bonds, munis, agencies, or the like. The fact that she is not putting the money to work in other investments tells me that there’s fear, a la 2008, coming back into the play here.

The banker is absolutely right about the risk avoidance factor. That's part of why Bernanke hasn't grown the money supply despite the sizable growth in the monetary base. Market players continue very risk averse and are willing to sit with funds as excess reserves and in T-bills. To the degree the anecdotal evidence of this banker is being experienced by other bankers, this fear factor may be increasing again.