Big Banks Look To Lower Corporate Deposits

JPMorgan Chase and Citigroup are among a number of big banks in the U.S. making a move to unload cash, and have asked some corporate clients to shift their funds from deposits to money market accounts, the Financial Times reported, citing sources.

Weakened demand for loans coupled with a surge in deposits has a negative knock-on effect on banks’ profits, balance sheets, capital requirements and returns on equity. 

Loosened capital rules put in place by the Federal Reserve when the pandemic took hold in March 2020 helped lenders deal with the increase in deposits. The rule change gave big banks the ability to temporarily exclude cash reserves and U.S. Treasury holdings from their assets when calculating supplemental leverage ratios (SLRs).

That regulatory relief was ended by the Fed last month, causing some banks to be more discerning regarding the deposits they will accept. SLR rules are now under review by the Fed, the news outlet reported.

It is not a typical move for banks to turn down deposits, JPMorgan CFO Jennifer Piepszak said during a March earnings call, per the news report. She also added that the practice “cannot be good for the system in the long run.”

Jai Sooklal, co-head of finance for the Americas at consultancy Oliver Wyman, told the Financial Times that many of the banks he has communicated with “are actively looking at the value of corporate clients” regarding which are profitable.

Deposits surged $243 billion January through March at JPMorgan, Bank of America and Citigroup, which are the largest U.S. banks by assets. Those deposits added to the record $1 trillion in 2020, which was up $92 billion over 2019, per the news outlet.

“Even if consumers do drawdown to go on trips to Disney World, and companies drawdown to build out new warehouse facilities and buy new equipment, they’re just not spending fast enough relative to what’s coming in,” said Gerard Cassidy, an analyst at RBC, per FT.

The Fed’s weekly survey last month showed that the 25 biggest U.S. banks cut their loan-to-deposit ratio to 53.9 percent. Total loans were $5.45 trillion, down by $447 billion, while total deposits were $10.13 trillion, up 16 percent.