Banks have hit a ceiling on the amount of deposits they want to carry from companies — so much so that banks don’t know what to do with them, The Wall Street Journal reported Wednesday (June 9).
Corporate executives had hurried to raise money when the pandemic began last year and banks have been holding it ever since.
Because companies are reluctant to borrow from them, the banks can’t turn the money into income-generating loans as they normally would, which has put a damper on their profit margins.
In light of that, some banks have begun urging their corporate customers to spend their cash on their businesses or move it elsewhere.
Bankers thought the improving economy would reduce the pandemic-era tendency of companies to keep holding cash. However, the deposits have not slowed even in recent weeks as vaccines continued going out and things kept opening back up.
According to some chief financial officers, such as Matthew Ellis, chief financial officer of telecommunications company Verizon Communications, the reason is because they’re simply not ready to implement big changes. Ellis said his company has been running on elevated cash balances for a year now. Because of that, there’s not been any decisions on if or when to change that, he added.
Among the banks wanting to unload cash are JPMorgan Chase and Citigroup, PYMNTS reported in May. There were loosened capital rules put into place in the early stages of the pandemic, which had the effect of helping lenders deal with the increase in deposits they were seeing.
However, that was ended by the Fed last month and now some banks are having to look closer at who they’re letting make deposits.
JPMorgan CFO Jennifer Piepszak said in a March earnings call that this was an unusual practice for banks, saying it wouldn’t be positive if it continued in the long run.
Selected by EFXA