I wrote a few days ago that the amount of currency held by the public is a very good measure of the public’s level of fear about the stability of the banks and financial system. The numbers are produced weekly by the Research Department of the Federal Reserve Bank of St. Louis.
Increase in Currency Holdings Over Year Ago Levels
The chart above shows that the level of fear is still very high. People have taken about $90 billion of $20 and $100 bills out of their bank accounts to keep at home under the mattress.
Increase in Currency Holdings Over Previous Month
The increase in currency holdings appears to be abating, however, as you can see in the chart above, which measures the increase over month earlier levels. Withdrawals, which had been running $10-$15 billion per month, have now decelerated to less than $5 billion in April.
These numbers bear watching. Whenever people conclude that the all-clear whistle has blown and banks are not going to fail there is going to be a flood of money being re-deposited into banks. That will make bank reserves swell even higher. It will give banks an additional $90 billion of zero cost deposits and the resulting $5-$10 billion of increased earnings, And it will be the signal for the next round of bank stock price increases.
I am heavily invested in financial stocks today for these reasons.
JR
