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
Two years ago, gathering deposits was a priority as liquidity concerns contributed to the demise of big financial institutions like
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
"Excess liquidity has not dissipated as quickly as we had expected," said Beth Acton, the chief financial officer at
"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
"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