NEW YORK (AP) — Bank of New York Mellon Corp. said Thursday that it will charge its customers a fee to hold cash deposits over $50 million.
The bank said it has seen such a large increase in deposits over the last month that it will charge a 0.13 percent fee to clients with “extraordinary high deposit levels.”
Bank of New York Mellon, which has $23.6 trillion in client assets under its custody, said customers have moved money to cash as a safe haven in the past month as investments like stocks and bonds have become increasingly volatile.
The bank’s customers are mainly large pension funds and money market funds. The bank collects dividends on stocks and holds cash deposits, among other things, on behalf of such large investment funds.
The 0.13 percent fee for keeping cash at Bank of New York Mellon is higher than what investors could earn on a one-year Treasury bill, a slightly riskier investment that is yielding 0.11 percent Thursday.
So far, the bank’s chief rivals, State Street Corp. and Northern Trust Corp., say they have not instituted the same kind of fee.
In the past few weeks, as Washington lawmakers debated whether to raise the country’s borrowing limit and a possible debt default loomed, investors grew increasingly nervous.
Investors withdrew $122 billion from money funds in the seven-day period ended Monday, according to industry researcher Crane Data. That exodus cut the money funds’ holdings by almost 5 percent.
According to research firm Crane, $121 billion was withdrawn from money market funds during the worst week of the financial crisis, which ended Sept. 17, 2008. That was the week Lehman Brothers filed for bankruptcy. That week the Reserve Primary Fund collapsed, leaving investor accounts temporarily below their original value. Money market funds earn very low interest, but rarely lose principal. They are considered to be the closest thing to holding cash.
Usually money market funds invest in short-term Treasury bills, which are so safe that they are considered a proxy for cash. However, money funds started selling Treasury notes that had payments due on Aug. 4 and Aug. 11 because it was not clear that a deal to raise the country’s borrowing limit would be made by the Aug. 2 deadline. The government said it would not be able to meet all of its financial obligations after that date if the country’s limit was not raised.
“The funds felt really exposed,” to the possibility of default, said Brad Durham, managing director of EPFR Global, a fund research company.
These large movements into cash from pension funds and money market funds underscore the degree of nervousness in the market. That fear has only gotten worse as a strong of reports point to slow growth in the U.S. economy.
The Dow Jones industrial average plunged 513 points Thursday, erasing its gains for the year. Treasurys soared as investors sought safer investments, sending the yield on the two-year Treasury note to a record low of 0.26 percent.
Bank of New York Mellon said that “once the markets stabilize, we expect deposit levels will trend lower … At that time, it is likely this fee will no longer be necessary.”
Associated Press business writer Mark Jewell from Boston contributed to this report.