Bankers have an odd-sounding problem these days: they are awash in cash. Droves of consumers and businesses unnerved by the lurching markets have been taking their money out of risky investments and socking it away in bank accounts, where it does little to stimulate the economy.
Though financial institutions are not yet turning away customers at the door, they are trying to discourage some depositors from parking that cash with them. With fewer attractive lending and investment options for that money, it is harder for the banks to turn it around for a healthy profit.
In August, Bank of New York Mellon warned that it would impose a 0.13 percentage point fee on the deposits of certain clients who were moving huge piles of cash in and out of their accounts. Others are finding more subtle ways to stem the flow. Besides paying next to nothing on consumer checking accounts and certificates of deposit, some giants ? like JPMorgan Chase, US Bancorp and Wells Fargo ? are passing along part of the cost of federal deposit insurance to some of their small-business customers.
Even some community banks, vaunted for their little-guy orientation, no longer seem to mind if you take your money somewhere else.
?We just don?t need it anymore,? said Don Sturm, the owner of American National Bank and Premier Bank, community lenders with 43 branches in Colorado and three other states. ?If you had more money than you knew what to do with, would you want more??
Like Sturm?s banks, Hyde Park Savings Bank, a community lender in the Boston suburbs, lowered its CD rates this spring to encourage less-profitable customers to move on. As a result, Hyde Park shed about 1,000 of its 35,000 CD holders, preferring customers who also had a checking or savings account. So far, banks have reported a modest increase in lending this year. Critics, however, fault the industry for being too tight-fisted ? no matter how much bankers insist that demand is anemic, especially from the most creditworthy borrowers.
But the banks? swelling coffers are throwing a wrench in efforts to get the economy back on track.
Ordinarily, in a more robust environment, an influx of deposits would be used to finance new businesses, expansion plans and home purchases. But in today?s fragile economy, the bulk of the new money is doing little to spur growth. Of the $41.8 billion of deposits that Wells Fargo collected in the third quarter, for example, only about $8.2 billion was earmarked to finance new loans.
Today, banks are paying savers almost nothing for their deposits. As it turns out, the banks are not minting money on those piles of cash. Lending levels have not bounced back from only a few years ago and the loans going out are not keeping pace with the deposits rushing in.