Loans – Huge U.S. banks starvation for loans, capital aid as deposits pile up
(Reuters) – A swell of deposits through the coronavirus pandemic has put huge U.S. banks on the again foot, with executives saying they hope regulators present aid on guidelines that punish bloated steadiness sheets till loan demand snaps again.
JPMorgan Chase & Co, Bank of America Corp and Citigroup took in additional than $1 trillion in deposits final yr, in contrast with a $92 billion improve in 2019.
In a extra regular financial system, that form of increase can be nice, permitting banks to lend extra or just make investments the cash in short-term, low-risk securities, like Treasury bonds.
However the stimulus funds and easy-money insurance policies by the federal government that led to the inundation of deposits has additionally created a number of issues for the banks: low rates of interest that crimp lending profitability and stunted loan demand as clients and firms awash with cash spend much less.
Mixed with guidelines that require extra capital for larger steadiness sheets, that makes deposits costlier to carry, as a substitute of worthwhile.
“Excess liquidity is piling up,” Bank of America Chief Monetary Officer Paul Donofrio mentioned throughout a convention name on Tuesday after the bank reported report deposit development.
Revenue margins on new deposits are “practically zero,” JPMorgan Chief Monetary Officer Jennifer Piepszak mentioned final week.
Citigroup’s $210 billion deposit improve pushed it into a brand new bracket beneath Fed guidelines, requiring the bank to carry extra capital, the bank mentioned final week.
Huge banks is not going to shun deposits as a result of dynamic, executives mentioned, as a result of doing so might harm their franchises. Nevertheless, they did push regulators to increase capital aid packages that expire March 31. Banks additionally need changes for holdings that aren’t excessive danger, like U.S. Treasury securities.
“It is an issue for us in the near to medium term should we not get the extension,” Piepszak mentioned.
Reporting by Imani Moise and David Henry; Enhancing by Lauren Tara LaCapra and David Gregorio