Accessible Version
What Drives the Substitution Between Bank Deposits and Money Market Funds? Accessible Data
Figure 1. Bank Deposits and MMF Assets under Management (AUM)
Panel A. Bank deposits and MMF AUMs; Panel B. Total Bank deposits and MMF AUMs (as a share of GDP)
Panel A plots the evolution of bank deposits and money market fund (MMF) assets under management (AUM). Bank deposits are defined as total deposits minus large time deposits at domestically chartered banks. MMF AUM reflects the aggregate assets under management of all U.S. domestic money market funds. All series are reported at a weekly frequency. Vertical gray lines mark major policy and market stress events, including the Federal Reserve’s introduction of interest on reserves in 2008, Eurozone Crisis in 2011, MMF reform implementation in 2016, the COVID-19 lockdown in 2020, and the Silicon Valley Bank crisis in 2023. The red line shows aggregate bank deposits from January 1995 through May 2025, rising from about USD 2 trillion to USD 15 trillion. The blue line shows aggregate MMF AUM over the same period, increasing from just above USD 0.5 trillion to USD 7 trillion. Key observations are (1) there have been substantial growth in both bank deposits and MMF assets and (2) their growth patterns do not show obvious patterns of substitution.
Panel B plots the sum of bank deposits and MMF AUM as a share of nominal GDP. The series rises markedly from below 40% of GDP in 1995 to over 70% in May 2025, underscoring the growing importance of these two sectors relative to the overall economy. Vertical gray lines mark major policy and market stress events, including the Federal Reserve’s introduction of interest on reserves in 2008, Eurozone Crisis in 2011, MMF reform implementation in 2016, the COVID-19 lockdown in 2020, and the Silicon Valley Bank crisis in 2023.
Notes: Panel A shows bank deposits and MMF AUM. Bank deposits refer to total deposits at domestically chartered banks minus their large time deposits. MMF AUM represents the assets under management of all U.S. money market funds. Panel B shows the sum of bank deposits and MMF AUM as share of nominal GDP. All series are weekly. Gray vertical lines indicate major policy and market stress events.
Figure 2. Evolvement of substitution between MMF assets and bank deposits
The plot shows 52-week rolling coefficients from Model (1), with 95% confidence bands represented by the shaded area. Confidence intervals are constructed using robust standard errors. A gray horizontal dashed line marks zero, providing a reference for whether the null hypothesis of a zero coefficient can be rejected. A gray vertical dashed line marks the peak of the global financial crisis (GFC), corresponding to the bankruptcy of Lehman Brothers in September 2008. The rolling coefficient estimates fluctuate over time but are generally negative and statistically significant—ranging between –0.5 and –0.2—prior to the GFC, highlighting significant substitution between MMFs and bank deposits. In contrast, post-GFC estimates are often close to zero and statistically insignificant. Overall, the figure underscores substantial structural changes in the relationship between MMFs and bank deposits over time.
Notes: The plot shows 52-week rolling coefficients from Model (1), with 95% confidence bands indicated by the shaded area. The confidence intervals are estimated using robust standard errors.
Figure 3. Substitution effect and cash availability
Panel A. Substitution effect and total bank reserves; Panel B. Substitution effect and IORB-EFFR spread
The red line plots the 52-week rolling coefficients from Model (1), with 95% confidence bands shown as shaded areas, identical to figure 2. The confidence intervals are calculated using robust standard errors. In Panel A, the blue line represents total reserve balances held by depository institutions at the Federal Reserve scaled by nominal GDP. In Panel B, the IORB–EFFR spread is defined as IOER minus EFFR from October 2008 to July 2021, and as IORB minus EFFR thereafter. The dashed line marks the pre-IOER regime, when banks did not earn interest on reserve balances. Panel A and B signify that reserve balances significantly increased after Federal Reserve started to pay interest rates, which coincides with timing that substitution weakened between MMFs and bank deposits.
Notes: The red line plots the 52-week rolling coefficients from Model (1), with 95% confidence bands shown as shaded areas. The confidence intervals are calculated using robust standard errors. In Panel A, the blue line represents total reserve balances held by depository institutions at the Federal Reserve scaled by nominal GDP. In Panel B, the IORB–EFFR spread is defined as IOER minus EFFR from October 2008 to July 2021, and as IORB minus EFFR thereafter. The dashed line marks the pre-IOER regime, when banks did not earn interest on reserve balances.