The outbreak has led to a surge in U.S. deposits since January
The influx of money into Bank of America is unprecedented in history: in April alone, U.S. deposits surged $865 billion, surpassing the previous years growth record. The surge in deposits has been largely driven by anti epidemic measures: the US government has released hundreds of billions of dollars to support small businesses and individuals through stimulus checks and unemployment benefits.
The Fed has begun a series of measures to support financial markets, including an unlimited bond buying program. The uncertain future has prompted both families and global businesses to hoard cash.
More than two-thirds of the money went to the 25 largest institutions, according to the FDIC. According to the data, funds are concentrated in the top investment banks: JPMorgan Chase, Bank of America and Citigroup. In the first quarter of this year, deposits of these investment banks grew much faster than those of other banks.
In any case, this growth is absolutely extraordinary, said Brian foran, an analyst at autonomy research. Now banks are flooded with cash.
The weekly deposit chart of commercial banks as of June 3, 2020 shows a deposit increase of up to $15.4 trillion
Various factors lead to large American banks winning huge deposits
The big US banks are the survivors of the last crisis in 2008. There are several reasons why they are the main beneficiaries of huge deposits this time. When states began shutting down factories in March, companies including Boeing and Ford immediately drew tens of billions of dollars from credit lines, which were initially deposited in the banks that made the loans.
Big banks also provide services to a large number of customers through wage protection programs. The government plans to spend $660 billion to support small businesses. Since lenders mainly provide services to existing customers, these funds will first enter the bank accounts of companies that facilitate loans.
Institutions known as trust banks are custodians of investments by asset managers such as BlackRock or fidelity. These institutions received deposits when the Feds bond buying program snapped up billions of dollars in mortgage-backed securities. JPMorgan and Citigroup have large custody units.
Of course, super banks have the largest number of US retail customers. According to the Bureau of economic analysis in May, the personal savings rate in the United States reached a record 33% in April. Personal income actually rose 10.5% in the month, thanks to $1200 in stimulus checks and unemployment benefits. In some cases, these totals exceed a workers normal income.
All the money went into the bank account. Brian Moynihan, chief executive of Bank of America, said in an interview last month that checking accounts below $5000 actually increased funding by 40 per cent compared to before the outbreak.
From the fourth quarter of 2019 to the first quarter of 2020, the deposit growth of JP Morgan, Citigroup, Bank of America and Wells Fargo is as follows:
Banks cash flooding may lead to further interest rate reduction
In the post financial crisis era, for large banks with branches all over the country, sufficient deposits have always been a key advantage. These banks are one of the cheapest sources of lending, helping the industry generate record profits even at low interest rates.
Banks will lend cautiously during the recession. However, analysts at autonomy research point out that many banks have said that, frankly speaking, they cant do anything about it now, and there are so many deposits that they dont know how to use them.
If the deposit boom is just a sign of measures taken to mitigate the financial crisis, it remains to be seen what the final consequences of the governments historic consumption stimulus will be. Some experts believe that the collapse of the dollar will be accompanied by higher inflation, while others believe that the stock market bubble is taking shape.
For savers, one consequence will be more immediate: banks will surely lower their already low interest rates because they dont need more money, Mr. flan said.
Because of the blockade measures caused by the epidemic, the consumption of the United States has been severely damaged, and a large number of deposits have poured into the Bank of America, which will also slow down the pace of economic recovery. In the future, the downward pressure on the dollar will increase, and investors need to be vigilant.
(daily chart of US dollar index)
At 10:06 on June 22, Beijing time, the dollar index was at 97.59/60. Source: Yang Bin, editor in charge of huitong.com_ NF4368