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posted by martyb on Tuesday June 15 2021, @07:30PM   Printer-friendly
from the I'll-take-it! dept.

Banks to Companies: No More Deposits, Please:

U.S. companies are holding on to billions of dollars in cash. Their banks aren’t sure what to do with it.

When the coronavirus pandemic hit last year, corporate executives rushed to raise money. Banks have been holding that cash ever since, and because companies are reluctant to borrow from them, they can’t turn it into income-generating loans. That has weighed on banks’ profit margins, and some have started pushing corporate customers to spend the cash on their businesses or move it elsewhere.

Bankers say they thought the improving economy would reduce companies’ desire for holding cash, but deposit inflows have continued in recent weeks. Chief financial officers and treasurers, many still wary of the pandemic’s impact, say they aren’t ready for big changes, even if they earn little or nothing on their deposits.

[...] Top of mind for many big banks is a rule requiring them to hold capital equivalent to at least 3% of all assets. Worried about the rule’s impact during the pandemic, the Fed changed the calculation in 2020 to ignore deposits the banks held at the central bank, but ended that break this March. Since then, some banks have warned the growing deposits could force them to raise more capital, or say no to deposits.

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  • (Score: 2) by Tork on Tuesday June 15 2021, @07:47PM (8 children)

    by Tork (3914) Subscriber Badge on Tuesday June 15 2021, @07:47PM (#1145643)

    That has weighed on banks’ profit margins, and some have started pushing corporate customers to spend the cash on their businesses or move it elsewhere.

    This is a topic well outside of my range of experience, so please forgive me if this is a dumb question... but... how does this not just end in businesses just moving to another bank? Seems to me deposits are the whole reason a company would do business with a bank in the first place, but again this is a topic I'm completely ignorant on. Is there some Mr. Drysdale sort of nuance I'm missing?

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  • (Score: 5, Funny) by Anonymous Coward on Tuesday June 15 2021, @07:51PM

    by Anonymous Coward on Tuesday June 15 2021, @07:51PM (#1145646)

    >> Is there some Mr. Drysdale sort of nuance I'm missing?

    Yes. Banks have limited room in their vaults. When you reach a certain limit (called the bank's "capital ratio"), there's no longer enough empty space in the vault for the bank CEO to roll around naked in the piles of cash. Thus the current problem.

  • (Score: 4, Interesting) by EvilSS on Tuesday June 15 2021, @07:54PM (2 children)

    by EvilSS (1456) Subscriber Badge on Tuesday June 15 2021, @07:54PM (#1145647)
    Other than the colossal PITA it would be for a big corp to change banks, you would have to assume the banks they would move to would have the same sort of problems though. They may be able to split their banking up across multiple banks but if a lot of companies do this, you end up with the same issue.
    • (Score: 0) by Anonymous Coward on Wednesday June 16 2021, @02:09PM (1 child)

      by Anonymous Coward on Wednesday June 16 2021, @02:09PM (#1145902)

      What do you mean? A PITA to change banks? If you're big enough, the bank you're changing to is very eager to make this very easy on you and your customers.

      • (Score: 0) by Anonymous Coward on Friday June 18 2021, @08:06AM

        by Anonymous Coward on Friday June 18 2021, @08:06AM (#1146886)

        Not if you are too big and your ratio is too high/low. Switching in that case either costs the company a lot of money in penalties that they usually forward to the bank or costs the bank a lot of money by changing their liquidity too much or in expenses eating into their net.

  • (Score: -1, Spam) by Anonymous Coward on Tuesday June 15 2021, @08:10PM

    by Anonymous Coward on Tuesday June 15 2021, @08:10PM (#1145650)

    Banks and industry are run by Jews and Jews collude. In America, auto insurance is required in 48 states. In states where insurance is required, you will hear commercials about switching auto insurance to save money. Well, guess what: The best offer you're gonna get is that same damn offer you're getting with your current insurance company. And auto insurance costs will rise year after year regardless of your driving history.

    Jewish greed is to blame, but to their credit driving will indeed become a lot more dangerous in the near future thanks to all the illegals they're bringing in. We're already seeing a huge uptick in Mexican-related driving infractions such as DUI, unlicensed driving, uninsured driving, hit-and-runs, and generally driving like they're in China or Vietnam.

  • (Score: 4, Informative) by Anonymous Coward on Tuesday June 15 2021, @08:34PM

    by Anonymous Coward on Tuesday June 15 2021, @08:34PM (#1145655)

    As best I understand it, the problem is that your cash in a bank is the bank's liability.  I promise this will get somewhere, but think back to the mortgage crisis.  The bank's income stream was your liability, your mortgage.  The mortgage crisis happened in part because we had only a few giant institutions who were shoving the risk of the mortgages out the back door while buying up that same risk in the front door.  In order to protect themselves from bad loans, banks got a whole bunch of new restrictions that limited their ability to make out new loans or convert their liability, your cash, into an asset.  Furthermore, they seem unwilling to do so for reasons unknown (except to really rich people).  One last brief aside, the way banks deal with your cash being a liability is via owning 2-3 year treasuries that pay 0.x% currently and then they pay you some smaller % of interest in your savings you deposited with them.  Now with that, we can tackle your question.

    The reason that moving banks doesn't work is that the banking system is really made up of about 5 big banks.  Mega corporations have to use these big banks because the small banks would be swamped by their size.  Like how mortgage risk was spread around the 5 big banks in crazy methods, the liabilities of banks get spread around too.  They already know how to trade with each other, moving liabilities around via asset swaps (treasuries), even if they are not actually swapping the deposits.  There is in effect, too much currency relative to assets (for those who have large balance sheets) in the system right now, and so the natural interest rate for the US gov't 2-3 year bonds should be negative, due to excess demand.  That would mean everyone would have negative interest rates and would pull cash out the system.  The problem there is you'll just put it under the bed, whereas the fed wants you to go spending it.  Losing the purpose of a bank, to hold that cash is obviously bad for banks.  So the fed is giving the banks an out via reverse repo so they get a 0% interest rate, rather than negative, to keep the banks alive.  That is the plumbing as I understand it.

    On a more speculative side, but perhaps interesting let me add a few side comments. If you buy into MMT, the other ways to delete the excess cash is to tax it away, but that is beyond the fed's ability to implement and is where predicting what will happen next becomes hazy. The other unexpected element to this is that banks create ("print") money via credit creation. That is to say, they add money to your account where money didn't exist before (See Richard Werner's studies on this). In theory the banks basically are a management mechanism for running the economy. This works great when there are lots of little banks, all local, who know who is trust worthy to give money to and who isn't (ala It's a Wonderful Life). That is to say, when they assess on character and community needs. As big business and big banks have expanded to kill many of the local banks off, that is dying off. Much of the alt currencies and anti-1%ers are diagnosing this problem where the system doesn't scale up well because the big banks only really deal with big clients. They created a bunch of credit in Feb/March 2020 (printed money) when every business accessed their revolving credit. Now the businesses realize they can fire more workers and have less real estate (work remotely, etc.) they need less cash than before. Yet the businesses also know that this pandemic playbook is pretty hard to predict, there just isn't a map for this. So they want the cash for safety and they want the bank to deal with it. But the bank's constraints make it difficult, because that + stimmy money are pushing on the constraining rules the banks have to follow. Outside of the stimmy money, much of the cash the banks are dealing with is credit creation they made. They just aren't built to hold that money, they are built to see it go somewhere (ala velocity of money). Thus the system is contorting to deal with it.

    NOTE: I'm not a banker, accountant or any kind of expert, just a dud who has been studying this for a while and thinks that the models they have might be useful.

    - JCD

  • (Score: 2) by krishnoid on Tuesday June 15 2021, @08:41PM

    by krishnoid (1156) on Tuesday June 15 2021, @08:41PM (#1145657)

    Actually, people do business with a bank for the deposits, and sometimes mortgage loans. Businesses may manage their cash flow through banks, but importantly banks take the deposits that the little people have put in, and issue loans to businesses []. Sometimes the banks then sell those loans (which is sort of a promise to pay that amount plus some interest) to other banks, and get their money back right away.

    When a business pays back that money, the promise is fulfilled and the loan sort of 'disappears':

    • the bank now has that pile of repaid money they need to keep safe,
    • they still need to pay interest to the little people on their savings accounts and certificates of deposit, and
    • they have to find a way to get that interest from somewhere to pay out, so
    • the bank loans out the money again, and
    • rinse and repeat

    In the current situation, consider that not only do they have to keep finding businesses to loan money to as part of their daily business, if they have *more* deposits coming in, they need to loan out even *more* money -- and not willy-nilly, or they might loan it to someone with a bad business plan [] who's at more of a risk of their business failing and folding, and the loan not being repaid. So the banks are asking the businesses not to make big deposits, since banks are already having trouble loaning out the money they have on hand.

    This is grossly simplified, as you can ruin someone's credit rating or take their house (e.g., a 'secured' loan) if they don't pay back their loans, plus loan rates fluctuate, but you can whack other information or questions you have against this description and refine it.

  • (Score: 1) by RobC207 on Wednesday June 16 2021, @02:24AM

    by RobC207 (3408) on Wednesday June 16 2021, @02:24AM (#1145731)

    The thing is...when you deposit cash in the bank that becomes a liability for the bank. They need to pay you that money in the future.

    On the positive side, from their point of view... a loan is an asset for the bank. You're on the hook to provide them income.