• Nearly $47 billion has entered the US banking system in one week.
• Banks are deploying new strategies to bring customers back, such as borrowing from the Federal Reserve and relying on third party, brokered deposits.
• These strategies are costly and may result in paying more for cash than what is earned through lending it out.
Record Deposits Enter US Banking System
Nearly $47 billion has entered the US banking system in just one week as banks deploy new strategies to bring customers back. According to stats compiled by the Federal Reserve Economic Data (FRED) system, depositors added exactly $46.95 billion to American bank accounts in the week ending June 21st.
Strategies To Reverse Deposit Flight
Banks are introducing various tactics in order to increase their deposits and combat deposit flight. These include borrowing large sums of money from the Federal Reserve and relying on third-party, brokered deposits put together by intermediaries. Although these methods may be helping banks boost their deposits, they come with a significant cost that could outweigh any earnings made through lending it out.
Rising Costs Threaten Banks
Regulatory filings for 84 of the biggest banks shows how much they were borrowing through those channels at the end of March, and also indicates that costs were beginning to eat away at profits. If this trend continues, many banks may find themselves paying more for cash than what they are earning through lending it out – putting them at risk for losses or insolvency.
Notable Increase In Brokered Deposits
One example of a bank engaging in these practices is PacWest Bancorp based in Los Angeles which recorded a 1,774% increase in quarterly brokered deposits compared to a year earlier. These types of deposits are often referred to as “hot money” because they do not stay long-term like organic deposits do so acquiring them can be expensive over time.
Deposit Totals Still Down From Last Year
In total, the amount of deposits in US banks now stands at $17.34 trillion – still significantly lower than last year’s figure of $18.10 trillion from one year ago before deposit flight began increasing rapidly across America’s financial institutions
