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posted by martyb on Tuesday June 15, @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 Gaaark on Tuesday June 15, @08:06PM (19 children)

    by Gaaark (41) on Tuesday June 15, @08:06PM (#1145649) Journal

    Spend it on employees! Yeah, right.

    Surprised they don't just give THEMSELVES bonuses.

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  • (Score: 5, Insightful) by Mykl on Tuesday June 15, @09:41PM (14 children)

    by Mykl (1112) on Tuesday June 15, @09:41PM (#1145669)

    This is actually the exact problem in the US at the moment. Money is trickling to the top and not making its way back down. Those at the top are hoarding it, thus keeping it out of, and slowing, the economy. This in turns damages the businesses that they own, because their customers can't afford to spend money that they don't have.

    The problem would be largely solved by handing out a bunch of cash to employees, who will use it to go out and spend, stimulating the economy and generating demand (thus improving the outlook of business). It would actually be a win-win, but the cash hoarders can't see beyond having the biggest number in the bank they can (which they'll never spend).

    • (Score: 4, Informative) by MIRV888 on Tuesday June 15, @11:24PM

      by MIRV888 (11376) on Tuesday June 15, @11:24PM (#1145686)

      You said 'at the moment'.
      I would submit that the upward trickling has been going on for a very long time.

    • (Score: 3, Insightful) by khallow on Wednesday June 16, @01:35AM (12 children)

      by khallow (3766) Subscriber Badge on Wednesday June 16, @01:35AM (#1145724) Journal

      This is actually the exact problem in the US at the moment. Money is trickling to the top and not making its way back down. Those at the top are hoarding it, thus keeping it out of, and slowing, the economy. This in turns damages the businesses that they own, because their customers can't afford to spend money that they don't have.

      The thing to remember here is that by "hoarding" that money, they are losing that money. Inflation will chew it up. Putting cash into a low value but liquid investment means that they are waiting for better economic circumstances.

      The problem would be largely solved by handing out a bunch of cash to employees, who will use it to go out and spend, stimulating the economy and generating demand (thus improving the outlook of business). It would actually be a win-win, but the cash hoarders can't see beyond having the biggest number in the bank they can (which they'll never spend).

      So it's not win-win, because you don't have an actual solution for the "cash hoarders". They aren't choosing to lose money because they want big numbers in a cash account, but because it's not a good investment to hand out a bunch of cash to employees, getting nothing in return (and sorry, some nebulous promise that it's good for the economy counts as nothing in return).

      Instead, it's the economy, stupid. [wikipedia.org] Work on fixing the problems afflicting these economies, short and long term, such as covid, out of control government spending, trade wars, terrible infrastructure policy, ideological conflict, and punishing employers. That sort of thing will do more in the long term than redistributing money.

      • (Score: 2) by Mykl on Wednesday June 16, @03:47AM (7 children)

        by Mykl (1112) on Wednesday June 16, @03:47AM (#1145759)

        Instead, it's the economy, stupid.

        Hmmm, let's see what you mean by that.

        covid

        Agreed, we need to get that under control to get things back on track

        out of control government spending

        OK, fix income inequality by spending less. This very much depends on what you are cutting spending from. If you are proposing to reduce social welfare spending then that's not going to help spread the wealth

        trade wars

        Agreed

        terrible infrastructure policy

        I would normally think this refers to underspending. However, you've advocated a reduction in government spend above, so perhaps you mean we spend too much on infrastructure?

        ideological conflict

        Big Govt vs Small Govt? In other words, spend less?

        and punishing employers

        By taxing them too much? Less money into Govt!

        Correct me if I'm wrong, but it seems that your solution to the lack of money in the economy is to spend less.

        • (Score: 2, Interesting) by khallow on Wednesday June 16, @12:05PM (6 children)

          by khallow (3766) Subscriber Badge on Wednesday June 16, @12:05PM (#1145856) Journal

          OK, fix income inequality

          Where's the evidence that is a problem? I certainly don't see it as one, much less one that can be fixed by a temporary redistribution of cash (after the money runs out, it no longer counts as income). Once the cash goes away, you're back to square one with the businesses actually providing the incomes now missing that cash. The demand-oriented point of view doesn't tell us where the cash is supposed to come from the next time.

          And you're not any wealthier or better off, if Gates were worth a million dollars instead of 100 billion dollars.

          I would normally think this refers to underspending. However, you've advocated a reduction in government spend above, so perhaps you mean we spend too much on infrastructure?

          Yes and no.

          I think we spend too much on new infrastructure and too little on maintaining existing infrastructure. For example, I'm seeing estimates of deferred maintenance on US public infrastructure in the neighborhood [bondbuyer.com] of a trillion dollars. California presently is planning to spend a tenth of that ($100 billion) to build an almost useless stretch of high speed rail. A tenth of the US's maintenance deficit is squandered on a flashy train to nowhere.

          Let's maintain useful infrastructure instead.

          Big Govt vs Small Govt? In other words, spend less?

          Or how about things like not turning covid mitigation (like wearing masks) into a political issue? Not burning down local businesses because cops shot a black guy? The endless public theater over people who don't think or believe the same things?

          and punishing employers

          By taxing them too much? Less money into Govt!

          Among other things, by putting in tax and regulatory disincentives to employ people - like high taxes per employee and large regulatory obstacles when businesses hit certain numbers of employees (50 full time employees is a popular regulatory threshold in the US). Put in a disincentive to employ people and those businesses employ less people. Amazing how that works.

          In any case, all that cash indicates that the economy isn't providing opportunities for investment and employing people, not yet another useless wealth redistribution scheme.

          • (Score: 0) by Anonymous Coward on Wednesday June 16, @08:08PM (1 child)

            by Anonymous Coward on Wednesday June 16, @08:08PM (#1146088)

            Another roynd of khallow's tit for tat stupidity. Does anyone actually read his walls of text anymore?

            • (Score: 2) by Mykl on Wednesday June 16, @10:22PM

              by Mykl (1112) on Wednesday June 16, @10:22PM (#1146156)

              I appreciate the fact that he responded to my questions: +1 Interesting. I don't agree with most of his post, but I can appreciate that he has an opinion on it. We are definitely aligned on Infrastructure spending - way too little spend on maintaining existing stuff.

          • (Score: 2) by deimtee on Friday June 18, @12:51AM (3 children)

            by deimtee (3272) on Friday June 18, @12:51AM (#1146791) Journal

            In any case, all that cash indicates that the economy isn't providing opportunities for investment and employing people, not yet another useless wealth redistribution scheme.

            I think this is actually becoming one of the major problems, especially on the small end of the investment scale. At some point, the economy is producing enough to feed, house, and entertain everyone without requiring anywhere near enough human work to keep everyone employed.

            Investing in a new business requires identifying an under-filled need in order to attract customers. It is getting to the point where starting a new business means competing with a giant company, it is just not viable unless you can come up with something that is both truly new and valuable. Not many people can do that, and every time one does there is one less opportunity left. At the same time, big companies are streamlining and using automation and economies of scale to reduce the number of employees.

            The government here is doing exactly the wrong thing. They should be lowering the retirement age and encouraging shorter working weeks. Instead, at least here in Oz, they are doing the exact opposite. The retirement age goes up by one year every two, they keep reducing penalty rates for overtime, and (big surprise!) many of the kids leaving school can't find jobs.

            --
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            • (Score: 1) by khallow on Friday June 18, @03:19AM (2 children)

              by khallow (3766) Subscriber Badge on Friday June 18, @03:19AM (#1146827) Journal

              I think this is actually becoming one of the major problems, especially on the small end of the investment scale. At some point, the economy is producing enough to feed, house, and entertain everyone without requiring anywhere near enough human work to keep everyone employed.

              The economy does a hell of a lot more than that. A couple of big ones are human longevity and improving our own abilities.

              Investing in a new business requires identifying an under-filled need in order to attract customers. It is getting to the point where starting a new business means competing with a giant company, it is just not viable unless you can come up with something that is both truly new and valuable. Not many people can do that, and every time one does there is one less opportunity left. At the same time, big companies are streamlining and using automation and economies of scale to reduce the number of employees.

              This happens all the time. Giant companies are notorious for being unable to find and deliver new and valuable goods and services. Small businesses explore the many profitable avenues the giants ignore.

              The government here is doing exactly the wrong thing. They should be lowering the retirement age and encouraging shorter working weeks. Instead, at least here in Oz, they are doing the exact opposite. The retirement age goes up by one year every two, they keep reducing penalty rates for overtime, and (big surprise!) many of the kids leaving school can't find jobs.

              Sounds like Oz is forced to be smarter than you (probably because they need the resources from those additional workers to provide the services they've committed to). This is far from the first time that someone has come up with a relatively sensible list of problems and then proposed a solution that requires turning their back completely on the problems they just acknowledged. Deliberately shrinking the labor market won't identify under-filled needs nor create more small and medium sized businesses. Instead, it destroys resources like labor that would otherwise be applied to such problems.

              It's a problem creator, not a problem solver.

              • (Score: 3, Interesting) by deimtee on Friday June 18, @05:21AM (1 child)

                by deimtee (3272) on Friday June 18, @05:21AM (#1146859) Journal

                The economy does a hell of a lot more than that. A couple of big ones are human longevity and improving our own abilities.

                Which changes the actual point of that paragraph by about 0.4 iotas.

                This happens all the time. Giant companies are notorious for being unable to find and deliver new and valuable goods and services. Small businesses explore the many profitable avenues the giants ignore.

                Except the giants aren't ignoring them anymore. Set up almost any innovative new small business and some large company will crush it.

                Deliberately shrinking the labor market won't identify under-filled needs nor create more small and medium sized businesses.

                The labour market is currently over-supplied. This is evidenced by the difficulty young people have in entering it. Raising the retirement age is like eating your seedcorn. By the time those geriatrics are finally knocked off by COVID 2040 or something society is going to hit a wall where no-one knows how to do the jobs. 30 year-olds on unemployment for 10 years are not ideal trainees and no trainers will be around anyway. Early retirement forces the companies to train the next generation now.

                Yes we should be massively investing in life-extension, medical research, space, all that stuff. Now what percentage of people do you think can realistically contribute to that sort of endeavor? I would say less than 1% of people have the capability to undertake research at that level.

                --
                No problem is insoluble, but at Ksp = 2.943×10−25 Mercury Sulphide comes close.
                • (Score: 1) by khallow on Friday June 18, @07:42AM

                  by khallow (3766) Subscriber Badge on Friday June 18, @07:42AM (#1146879) Journal
                  That's some pretty bizarre claims there. Much of the world just doesn't have those problems. Maybe you ought to at what works rather than listen to suicide cults [wikipedia.org].

                  The claim that giants aren't ignoring the small fry and "crushing" them is bunk. For example, one such phenomena is for small companies to cut in on large companies' business merely by replicating what made the large company successful in the first place. This happens a lot in the retail, grocery, and restaurant sectors, for example. The big company gets sloppy and often a small company just inserts itself, often using the same tricks that the big company once used.

                  Second, my point about your paragraph, which you complete miss, is that there is huge room for the economy to improve our lives. Sure, there's only so much food you can eat - we can only go so far there. But there's a lot more life you could be living. There's a lot more knowledge you could be learning. Places you could go. Etc. Treating those far more open-ended needs/wants the same as food and shelter is profoundly ignorant.

                  Third, let's look at this paragraph:

                  The labour market is currently over-supplied. This is evidenced by the difficulty young people have in entering it. Raising the retirement age is like eating your seedcorn. By the time those geriatrics are finally knocked off by COVID 2040 or something society is going to hit a wall where no-one knows how to do the jobs. 30 year-olds on unemployment for 10 years are not ideal trainees and no trainers will be around anyway. Early retirement forces the companies to train the next generation now.

                  As I already noted, there's a number of countries that don't have trouble with over-supplied labor markets. They don't need to do any of the above. It's time to look at what works.

                  What I find particularly remarkable is your lack of interest in finding solutions that don't blatant cause the problems you're complaining about. For example, if we reduce human participation in labor (which is what your previous suggestions about early retirement and shortening the work week would do), then 30 year olds who haven't seen work aren't going to be your biggest problems. A huge pile of people who aren't doing anything will be your biggest problem.

                  Further, you complain about lack of experience among workers while proposing policies - like getting rid of the most experienced workers - that will just make it worse. At least propose something that makes things better.

                  It's throwing away the seed corn to throw away good workers because of some ridiculous ideological goal. Get more employers - not throw more workers out.

                  Yes we should be massively investing in life-extension, medical research, space, all that stuff. Now what percentage of people do you think can realistically contribute to that sort of endeavor? I would say less than 1% of people have the capability to undertake research at that level.

                  A lot more than 1%. Research doesn't happen in a vacuum nor is it the largest part of investing in "all that stuff". You need a lot of infrastructure, support staff, and implementation staff. For example, suppose your "less than 1%" researcher comes up with an idea for extending life span by 10 years. Well, how do you know it'd work? It needs to be tested. More than 1% of the population can do serious work there. Then when such treatments work, you need to apply them to people. That requires more staff, again more than 1%. All those people need low skill work done, like empty trashcans, moving packages, greeting people, and such. And of course, now that you have a large group of wealthier people working in this industry, they need stuff from the general market - landscaping, childcare, auto and housework, etc.

                  The ignorance here is remarkable. There is a simple answer to this supply and demand problem - increase the demand for workers. It's worked for centuries, far longer than any of us have been alive. We should wonder why you're deliberately choosing the more painful and harmful route rather than the obvious route. But this would require us to actually throw some bennies to the people who actually hire rather than the rest who don't.

                  My take is that ultimately this is yet another lobbying effort for a lifestyle. As a near libertarian, I have no trouble with you living however you like (bar the usual imposition on other peoples' rights), but I see no reason we should structure society to accommodate your desired lifestyle. Figure out how to fund it yourself. Don't cripple your society for your own selfish interests.

      • (Score: 1, Informative) by Anonymous Coward on Wednesday June 16, @02:26PM (3 children)

        by Anonymous Coward on Wednesday June 16, @02:26PM (#1145909)

        out of control government spending

        Anytime I hear this I tune out. You do not understand finances at a sovereign state level.

        • (Score: 0) by Anonymous Coward on Wednesday June 16, @03:15PM (2 children)

          by Anonymous Coward on Wednesday June 16, @03:15PM (#1145934)

          If your brain is automatically blocking information you disagree with, that is a sign of poor mental health. It is a defense mechanism to avoid realizing you are wrong.

          • (Score: 0) by Anonymous Coward on Wednesday June 16, @03:48PM (1 child)

            by Anonymous Coward on Wednesday June 16, @03:48PM (#1145957)

            You're not wrong, but listening to that drivel is even worse. I'll be dumber for it afterwards, have a headache, and will have had to spend mental cycles on listening to something that is categorically bullshit.

            • (Score: 1) by khallow on Friday June 18, @03:27AM

              by khallow (3766) Subscriber Badge on Friday June 18, @03:27AM (#1146829) Journal

              out of control government spending

              Anytime I hear this I tune out.

              Sorry, that's a solid indication you're the one with the thinking problem. Every time I hear that sentiment explained, the person follows up with economic unicorns - things like helicopter money and other retarded bullshit where (in particular) control over money creation somehow can fix decades of irresponsible decisions overnight.

  • (Score: 2) by JoeMerchant on Tuesday June 15, @10:03PM (3 children)

    by JoeMerchant (3937) on Tuesday June 15, @10:03PM (#1145670)

    give THEMSELVES bonuses

    Oh, trust me, that's in the plans already. Pandemic impacted sales and performance targets mean extra large bonuses when "expectations are exceeded," and beyond that there are bigger and bigger perks in store for the upper echelons, particularly those who very publicly sacrificed their bonuses for 2020.

    Now, if I'm obtuse then please explain like I'm five, but... if banks are required to keep 3% of their deposits in capital equivalent, aren't these deposits 100% capital equivalent? I mean, they can't loan them out because there are no takers for the loans, so I get that they may be losing money, but it seems like they would be beating that 3% rule in spades. It also seems like that 3% rule may be far far too low if these companies "run on the banks" taking cash out all at once in the near future.

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    • (Score: 1, Interesting) by Anonymous Coward on Wednesday June 16, @12:45AM (2 children)

      by Anonymous Coward on Wednesday June 16, @12:45AM (#1145704)

      No, they are not capital equivalent. Deposits are a liability, not an asset, from the bank's point of view. This means that each deposited dollar decreases their capital equivalents.

      It is also worth pointing out that the capital equivalent requirement is not the same as the reserve requirement for depository institutions.

      • (Score: 3, Interesting) by JoeMerchant on Wednesday June 16, @01:29AM (1 child)

        by JoeMerchant (3937) on Wednesday June 16, @01:29AM (#1145723)

        Sorry, the five year old in me doesn't understand.

        These deposited dollars aren't going into depository institutions? Or, are they also depository institutions subject to the reserve requirement too?

        I get that a deposit presents as a liability on the balance sheet, but the five year old in me wants to know where that deposit went, and why it is not fungible with capital?

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        • (Score: 0) by Anonymous Coward on Wednesday June 16, @03:02AM

          by Anonymous Coward on Wednesday June 16, @03:02AM (#1145744)

          Because the Capital Equivalence rule is based on a modified balance sheet. Basically, it is the modified equity of the bank which is composed of the money that is not subject to the demand of a holder. Deposit money on hand may be an asset in the general sense but it is a part of a liability subject to the demand of a holder; the depositor has the (almost) unlimited right to walk into their bank and ask for all their money. Therefore, if the bank were to suffer a large risk event tomorrow, they cannot count on using the deposited money for it because, theoretically, everyone could post a demand (e.g. a run) simultaneous with the risk event. That is also why money deposited at the central bank cannot be used that way either: they don't actually have that cash on hand and they cannot demand it from the central bank immediately in order to cover that risk event. Deposits are even worse however because they also count as an additional liability for a percentage of their total against the capital of the bank, which reduces the bank's capital equivalent asset total even further and thus have a larger effect on the asset allocation percentage.

          Here is my attempt at a true ELI5. Let's say you are the playground bank. The only deposit you have is $10 from me and you don't hold any loans. The schoolyard bully says they spun the Wheel of Doom and you owe $1 by the end of the day. You could use a dollar from my $10 to cover that event but I could walk up at any time and ask for it back. Therefore, there is no guaranteed way to simultaneously survive both events with your capital. However if in addition to my $10, you had either $1 worth of CCE in an account of your own or stock that sells for $1 (equity) you are guaranteed to survive the event without problem.

          Real life is more complicated because they deal with probabilities, but that is the basic idea. They are trying to make it so the bank survives the risks it takes on while simultaneously limiting the damage it does to other institutions, protecting the depositors money, and preventing passing of risk onto borrowers through calls.