The disparity between borrowers at the top and bottom percentiles of the daily fed funds distribution has reached its biggest since September 2019.

The Fed has raised interest rates and decreased its balance sheet, forcing depositors to move money out of banks and into higher-yielding money-market funds.

This has led to four regional US banks collapsed this year.

Bank of America strategists believe smaller domestic banks with limited cash buffers are driving this upward pressure.

The Fed’s distribution of daily fed funds transactions shows overnight loans for the 99th percentile have risen to 5.65%, indicating liquidity pressure will persist as the balance-sheet reduction unfolds.