Big banks seek to cut corporate deposits
JPMorgan Chase and Citigroup are among a number of large U.S. banks trying to offload cash and have asked some corporate clients to move their funds from deposits to money market accounts, The Financial Times reported, citing sources.
The weakening demand for loans, coupled with a surge in deposits, has a negative ripple effect on banks’ profits, balance sheets, capital requirements and return on equity.
The relaxation of capital rules put in place by the Federal Reserve when the pandemic took hold in March 2020 has helped lenders cope with rising deposits. The rule change gave big banks the option to temporarily exclude cash reserves and US Treasury holdings from their assets when calculating additional leverage ratios (SLRs).
This regulatory relief was halted by the Fed last month, causing some banks to be more perceptive about what deposits they will take. The SLR rules are currently under review by the Fed, the outlet reported.
It is not a typical decision for banks to refuse deposits, JPMorgan CFO Jennifer piepszak said on an earnings call in March, according to the report. She also added that the practice “cannot be good for the system in the long run”.
Jai Sooklal, co-director of finance for the Americas at consulting firm Oliver Wyman, told the Financial Times that many of the banks he has spoken to “are actively pursuing the value of corporate clients” where they are profitable.
Deposits jumped $ 243 billion from January to March at JPMorgan, Bank of America and Citigroup, which are the largest US banks by assets. These deposits added to the record $ 1 trillion in 2020, an increase of $ 92 billion from 2019, according to the outlet.
“Even though consumers are levying to get to Disney World and companies are opting out to build new warehouses and buy new equipment, they just aren’t spending fast enough of what’s happening,” said Gerard Cassidy, analyst at RBC, by FT.
the Fed Weekly Poll last month, the 25 largest US banks reduced their loan-to-deposit ratios to 53.9%. Total loans were $ 5.45 trillion, down $ 447 billion, while total deposits were $ 10.13 trillion, up 16%.