Deepsepia
08-18-2011, 09:21 PM
I gotta say, there are things you'd never think you'd see happening. A "deposit stampede" or "reverse run"-- I'm not sure I've ever seen this discussed, even theoretically. This appears to be the flip side of concern about the European banking system, but its hard to tell
Banks in the U.S. are experiencing a very strange problem.
There’s a bank run underway...but in reverse.
All the major U.S. banks are seeing an influx of deposits. Reserve levels at the Federal Reserve are climbing to astronomical levels.
Balance sheets are expanding as never before.
Imagine that this is that scene from "It’s A Wonderful Life," but played in rewind. The depositors are rushing in with their money, nearly toppling George Bailey as they try to get their money in the bank.
When the U.S. dollar reserve in the Fed accounts of European banks decline, it necessarily means that the dollar reserves of the U.S. banks are increasing. As a result of various transactions, the Fed is moving money across the digital spreadsheet from European banks to U.S. banks.
This sounds like a good problem to have...but it isn’t.
Remember, a deposit at the bank creates a liability for the bank.
Banks must pay the FDIC fees equal to around 10 basis points, or about 0.1 percent, for their total liabilities. So the influx in deposits are costing the banks money. What’s more, banks begin to press up against regulatory limits on leverage as the deposits grow.
There isn’t much the banks can do with the hot money flowing in. They cannot commit the funds to longer-term loans, because it could come out of the banks as quickly as it can come in. Short-term and safe assets—such as a Treasury bond maturing in one month—pay less than nothing.
Banks can keep the money on reserve at the Fed, where they will earn 25 basis points, or 0.25 percent. They’ll earn some money on the 10-point spread, but not much.
http://www.cnbc.com/id/44191317
Banks in the U.S. are experiencing a very strange problem.
There’s a bank run underway...but in reverse.
All the major U.S. banks are seeing an influx of deposits. Reserve levels at the Federal Reserve are climbing to astronomical levels.
Balance sheets are expanding as never before.
Imagine that this is that scene from "It’s A Wonderful Life," but played in rewind. The depositors are rushing in with their money, nearly toppling George Bailey as they try to get their money in the bank.
When the U.S. dollar reserve in the Fed accounts of European banks decline, it necessarily means that the dollar reserves of the U.S. banks are increasing. As a result of various transactions, the Fed is moving money across the digital spreadsheet from European banks to U.S. banks.
This sounds like a good problem to have...but it isn’t.
Remember, a deposit at the bank creates a liability for the bank.
Banks must pay the FDIC fees equal to around 10 basis points, or about 0.1 percent, for their total liabilities. So the influx in deposits are costing the banks money. What’s more, banks begin to press up against regulatory limits on leverage as the deposits grow.
There isn’t much the banks can do with the hot money flowing in. They cannot commit the funds to longer-term loans, because it could come out of the banks as quickly as it can come in. Short-term and safe assets—such as a Treasury bond maturing in one month—pay less than nothing.
Banks can keep the money on reserve at the Fed, where they will earn 25 basis points, or 0.25 percent. They’ll earn some money on the 10-point spread, but not much.
http://www.cnbc.com/id/44191317