By: Ronald J. Ryan, CFA, CEO, Ryan ALM, Inc.

The recent run-on-banks has several villains or reasons why this happened. Yes, there is a flight to big banks and quality. But the word that I do not hear is DISINTERMEDIATION. This is when clients decide they can get a higher yield on deposits considered safe by moving their deposits from banks to Treasuries… mainly, T-Bills. Given the inverse yield curve, depositors can port their funds from bank savings accounts to a Treasury investment and increase yield by hundreds of basis points with no cost from Treasury Direct. Such a transaction can be done quickly over a laptop or even a phone.

In the late 1970s and early 1980s, disintermediation was a significant trend given double-digit Treasury rates and an inverse yield curve. Disintermediation was a major cause of bank and S&L failures after 1980 as 1,617 commercial and savings banks failed. Many regulations followed including Dodd–Frank (enacted in July 2010).