Why bank deposits are at record levels
since the onset of the coronavirus outbreak, bank deposits of households and companies across the world have swelled to levels never seen before.
This situation stands in stark contrast to the similarly pronounced global financial crisis (GFC) between 2007 and 2009, when deposit levels at banks declined amidst a debilitating global credit crunch. But today, as the pandemic continues to shutter businesses and restrict households, deposits at banks continue to balloon-and perhaps most concerning of all is that this expansion shows no signs of slowing down.
"Any way you look at it, this growth has been absolutely extraordinary," Brian Foran, an analyst at Autonomous Research, told CNBC last July. "Banks are flooded with cash; they're like Scrooge McDuck swimming in money." But if deposits had reached unprecedented levels back then, it has only become even more concerning since then.
According to the Quarterly Banking Profile (QBP), which provides a comprehensive summary of financial results for all US institutions insured by the Federal Deposit Insurance Corporation (FDIC), deposits grew by $635.2 billion during the first quarter of 2021 to reach a whopping $18.5 trillion. This is 3.6 percent higher than last year's fourth quarter and thus underlines the startling pace at which deposits have grown over the last few quarters. "Among deposit categories, deposits above $250,000 (up $424.8 billion, or 4.7 percent) and noninterest-bearing deposits (up $371.1 billion, or 8.1 percent) grew most from the previous quarter," the publication also reported.
"Deposits as a percentage of total assets reached a record high for the QBP of 81.8 percent in first quarter 2021."
The country's biggest banks, such as JPMorgan Chase and Citigroup, have been on the receiving end for much of this depositinflow onslaught. For one, such megabanks have the largest customer bases, and so they have had to accommodate more deposits from a sheer size perspective.
But more than that, these banks also have a major custodial presence that has proven extremely handy in supporting those major asset managers who have been buying up bonds and mortgage-backed securities as part of the US Federal Reserve's quantitative-easing programme. By serving as custodians for the likes of BlackRock and
Fidelity, therefore, banks have experienced a huge influx of deposits. And government stimulus efforts, such as the Paycheck Protection Program (PPP) to financially support small businesses, have also meant that billions of dollars initially ended up in the accounts of companies that facilitated such loans.
Ultimately, the flood of cash has become so excessive that several of the biggest banks in the United States have advised their corporate clients in recent weeks to move their money out of deposits, with JPMorgan and Citigroup recommending money-market funds instead. "Many of the institutions that I speak to are actively looking at the value of corporate clients…which ones from an overall perspective, [are] more or less profitable," Jai Sooklal, co-head of finance for the Americas at the consultancy Oliver Wyman, told the Financial Times in early May.
Such lenders are now facing particularly tough headwinds thanks to the recent lifting of a temporary COVID-era rule that excluded US Treasuries and cash from lenders' supplementary leverage ratio (SLR) requirement calculations.
As such, they now have to be extra careful to ensure the amounts of deposits they hold don't exceed regulatory thresholds.