Banks lose interest in deposits [Long Island Business News (NY)]
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Financial institutions that once vied for deposits by hiking interest rates and giving away gifts instead are sitting back and doing little or nothing to attract this money that is traditionally at the core of their business.
Instead of pursuing cash in the form of certificates of deposit and checking accounts, bankers are getting too much of a good thing these days - deposits, usually the lifeblood of profitable, sound banking.
Saying they can't find enough prospects for loans that they could use to profit from deposits and that they're running up administrative and other costs, they're coming close to closing the door on deposits.
"The broad brush is they're not pursuing deposits. They're awash in liquidity," said
He said banks are paying virtually nothing for deposits, with rates of one-tenth of a percent to one-quarter of a percent as common.
Banks also aren't competing for deposits because these days at least, they don't have to.
Cash has been flowing into federally insured bank accounts during the last several years as savers conclude banks are a trustworthy place to park money during turbulent times.
"Deposits are going up because there's a flight to quality," Loomis said. "People are scared and trying to deleverage and get rid of debt. The beneficiary of that is typically the bank. Banks are perceived to be safe."
"I had lunch recently with a 73-year-old banker who's been in the business 50 years," Falken said. "And he said that for the first time in his life he's trying to shed deposits."
Loomis said the incentive to amass deposits is lessening because even when banks lend out money, they often get a low rate, of about 3 percent.
"There's so much competition for the quality loans that banks want that yields keep being pushed down," said
Very short-term federal fund overnight securities that banks use for excess deposits offer almost virtually no returns now. "Banks are paying 1 percent on a CD, but they're only going to get 0.15 percent or less in the overnight market," Falken said.
Deposits also bring costs and regulatory requirements along with profits. When banks obtain a deposit dollar, they must convert it into an asset such as a loan or an investment in the form of a security.
Each new deposit adds other expenses in the form of higher
"Simply having that account open increases the banks' costs, and that's one reason banks don't see much value in having new accounts come in now," said
Meanwhile, Capital One grew its
But Loomis said even if many banks attract money in a down economy, some are taking dramatic steps to shed billions in deposits.
"It's silly to tie up capital in a good marketplace, but not a great one," Loomis said.
Bankers said as the economy improves and more robust businesses seek to borrow to grow, banks will want to grow their deposit streams.
Loomis said when banks are hungry for money to lend, or see an opportunity to reap bigger profits from investments, they will begin chasing deposits again, sending up the interest rates they pay.
"If you start to see bank deposit rates moving up over 1 percent, you'd conclude they're looking for deposit dollars," he said.
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