With attractive lending opportunities hard to come by, bankers are finding themselves doing what would have been unthinkable just two years ago: discouraging deposits.

Though interest rates on deposit accounts are manageable, due in part to historically low rates, costs remain associated with handling those relationships. Banks have also seen their ability to charge certain fees, on overdrafts, for example, constrained by the recent wave of financial reforms.

"The bottom line is that it hurts your margin if you get a lot of deposits and have nowhere to put them," said Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LLP. "The margin is the one thing banks are used to controlling, so it requires behavior modification to tone down an appetite for deposits."

Two years ago, gathering deposits was a priority as liquidity concerns contributed to the demise of big financial institutions like Washington Mutual Inc. At that time, the median loan-to-deposit ratio for the largest banking companies was above 105%, showing an imbalance where loans exceeded deposit levels, according to regulatory filings. By mid-2010, the median for the 15-biggest banking companies was 94.1%, as the pendulum has swung to deposit-heavy balance sheets.

Early this year, a large inflow of deposits benefited banks despite limited opportunities to turn around and lend the money. Instead, bankers could let higher-rate brokered certificates of deposits mature, replacing them with the lower-cost "core" deposits. They were also investing some excess funds in securities, but regulators this year warned against such a strategy due to the interest rate risk associated with hefty portfolios.

Now the primary options left for banks involve turning depositors away or housing deposits at the Federal Reserve.

In April, James Rohr, the chairman and CEO of PNC Financial Services Group Inc., said that deposits held at the Federal Reserve were "almost a nonperforming asset," given the negligible 8 basis points PNC was getting for the holding. Though PNC has reduced such exposure, other executives expressed similar concern during recent quarterly conference calls.

"Excess liquidity has not dissipated as quickly as we had expected," said Beth Acton, the chief financial officer at Comerica Inc., during the Dallas company's conference call with analysts last week. Comerica had, on average, $3.7 billion parked with the Fed in the second quarter, which cost the company roughly 23 basis points on its net interest margin, she said.

"We expect that excess liquidity will remain at these levels for the rest of the year," she added.

Retail customers are not the only ones hoarding cash, as some bankers discussed how loan and deposit levels for commercial clients are also out of whack.

James Dimon, chairman and CEO at JPMorgan Chase & Co., gave insight into such an issue with the New York company's middle-market clients. In early 2009, these clients had virtually even levels of loans and deposits, at $100 billion on each side of the balance sheet. "Now we have $90 billion of loans and $130 billion of deposits for those clients," he said during the company's July 15 call.

"You could see that start to show. They're pretty flush" with cash and have "huge unused lines" of credit, he said.

Donald Mullineaux, a finance professor at the University of Kentucky, said the issue is putting even the savviest bankers in a tough position. "The only way to get a higher yield is to take on more risk, and bankers are saying they aren't willing to do that yet," he said. "So if you are shrinking the asset side of the balance sheet, you have to reduce rates to shrink deposits."

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