The response to the epidemic has boosted savings in some ways: hundreds of billions of dollars have been released by the government to support small businesses and individuals through cheques and unemployment benefits. The Fed has taken a series of measures to support financial markets, including an unlimited bond buying program.
The uncertain future has prompted both families and companies to hoard cash.
More than two-thirds of the $2 trillion went to the 25 largest U.S. banking institutions, the FDIC said. The largest U.S. banks by assets - JPMorgan Chase, Bank of America and Citigroup - saw deposits grow much faster in the first quarter of this year than other banks.
In any case, this growth is absolutely extraordinary, said Brian foran, an analyst at autonomy research. Banks are full of cash, like Scrooge McDuck swimming in it.
Large banks also serve a large number of customers through the pay guarantee scheme (PPP) - a $660 billion government effort to support small businesses. Since lenders cater primarily to existing customers, the money first falls into the bank accounts of companies that facilitate loans.
When the Feds bond buying program snapped up billions of dollars in mortgage-backed securities, institutions known as trust banks, investment custodians for asset managers such as BlackRock or fidelity, got deposits. JPMorgan and Citigroup have large custody departments.
Of course, the largest banks have American retail customers; ordinary people have little choice to spend money at home. Last month, the U.S. Bureau of economic analysis said the personal savings rate hit a record 33% in April. Personal income actually rose 10.5% during the month, thanks to $1200 in stimulus checks and unemployment benefits that, in some cases, add up to more than a workers regular income.
All the money went into the bank account. Brian Moynihan, chief executive of Bank of America, said last month that checking accounts with balances below $5000 actually deposited 40% more money than before the virus hit.
In the post financial crisis era, large banks see large deposits as a key advantage. They are one of the cheapest sources of loan funding, helping the industry generate record profits even in low interest periods.
If the deposit boom is just a sign of the measures taken to mitigate the financial damage caused by the virus pandemic, it remains to be seen what the final consequences of the governments historic consumption boom will be. Some experts predict that the dollar will depreciate with higher inflation. Others think the stock market bubble is forming.
But one of the consequences for savers will be more direct: banks will surely lower already low interest rates because they dont need more money.
Source: Financial Association editor in charge: Wang Xiaowu_ NF