American banks that have started to reject money deposits
- Guillermo D. Olmo - @BBCgolmo
- BBC World News
Some banks have already started to reject deposits for excess cash
Some of JP Morgan's biggest customers recently received an unusual statement. The bank asked them to take their money elsewhere.
As explained by its president, Jamie Dimon, the company wanted to reduce its deposit base by $ 200 billion.
And JP Morgan, one of America's finance giants, is no exception.
Under normal conditions, banks are always eager to take deposits, because they can grant loans and charge interest. This is the main part of your business.
But that profit margin disappeared due to a combination of factors.
Low demand for credit hurts banks
To begin with, the interest rates set by the Federal Reserve, the American Central Bank, have been at zero since March, a measure that aims to stimulate activity and the movement of money, but that reaches the profit that financial institutions obtain with loans.
And the demand for credit has plummeted. Uncertainty about when the pandemic will end and the economy will improve recommends caution for most people, and few now want to take out loans and take risks.
Added to this are the incentives approved by the government, ranging from the purchase of bonds issued by entities to the direct payment to families and companies, to the generation of more and more money.
As a result, JP Morgan, Bank of America and Citigroup received more than $ 1 trillion (R $ 5.43 trillion) in deposits in 2020, and the bank's loan / deposit ratio fell to record levels, to little more than 60%.
Economy levels have soared. "People are literally stockpiling dollars in banks," says Stovall.
Not only do banks now find it more difficult to monetize deposits. They are also required to have more capital to support them today than they did before the 2008 crisis - the authorities have since introduced measures to prevent a further collapse of the system.
Several industry executives have already demanded that the authorities relax these demands in this new context. According to Jennifer Piepszak, CFO at JP Morgan: "It is a problem for us in the short and medium term."
How this can affect account holders
Goldman Sachs is one of the big banks that can be affected by excess deposits.
Stovall believes that "now the financial system is strong", and its viability is not at stake. "It is more a question of how much your profit can be."
The expert recalls that "the biggest banks have many other ways of doing business" and does not believe that the new government chaired by Joe Biden will make substantial concessions on regulatory issues.
"System security is a priority for the government, which wants banks to be able to grant loans to activate the economy and, of course, banks are willing to do that."
And the customers? Will they find that they have nowhere to keep their money?
"Some banks may ask them to look elsewhere, but there will always be someone willing to receive the funds," predicts Stovall.
Low interest rates reduce the profitability of many savers
In reality, the most direct consequence of the current scenario has already been noticed by those who have their savings deposited in banks, because they have almost zero profitability, and projections do not suggest that this will change anytime soon.
Stovall warns that "this situation could lead many small savers to seek higher risk products and investments", as the price hike of highly volatile assets as bitcoin appears to confirm.
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