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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 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.

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