From Banks to Businesses: More Deposits, Please

American companies keep billions of dollars in cash. Their banks don’t know what to do with it.

When the coronavirus pandemic hit last year, business leaders raced to raise funds. Banks have been holding that money ever since, and since businesses are reluctant to borrow from them, they can’t turn it into income-generating loans. This squeezed bank profit margins, and some began pushing corporate clients to spend the money on their business or move it elsewhere.

The bankers say they thought improving the economy would reduce companies’ desire to hold cash, but deposit inflows have continued in recent weeks. CFOs and treasurers, many of whom are still wary of the impact of the pandemic, say they are not ready for big changes, even if they earn little or nothing on their deposits.

Verizon CFO Matthew Ellis.



“We’ve been operating with a higher cash balance for about 12 months now,” said Matthew Ellis, the telecommunications company’s chief financial officer.


Communications Inc. “There has been no decision yet if and when to shoot him down.” Verizon held $10.2 billion in cash and cash equivalents at the end of the first quarter, up 45% from a year earlier.

Pascal Desroches, who manages the rival’s finances

AT&T Inc.,

said the company does not plan to shift its cash to other investments to generate a higher return. “We’re not looking to optimize yield,” he said.

Companies flooded US banks with deposits at the start of the pandemic. In March 2020, the Federal Reserve drop in interest rates to near zero and launched bond-buying programs, which allowed many companies to raise funds at low cost. The Treasury Department also made loans, including airlines.

Bank deposits have continued to increase this year. Between the end of March and May 26, they rose by $411 billion to $17.09 trillion, according to the latest available data from the Federal Reserve. That’s slower than last spring’s pace, but still nearly four times the 20-year average, according to Fed data.

High deposits are generally not a bad thing for banks, as long as they can use the money to make loans. But bank lending has been slow as many companies prefer to borrow money from investors. For banks, total lending equaled 61% of all deposits as of May 26, up from 75% in February 2020, according to Fed data.

The industry’s net interest margin, a key measure of lending profitability, fell to a record high in the first quarter, according to the Federal Deposit Insurance Corp.

Some banks encourage corporate clients to consider alternatives. “Banks would certainly like to do different things, obviously,” said Peter Mariani, chief financial officer of Axogen Inc., a company specializing in nerve repair research. “But we will maintain our… prudent investment strategy with our cash.”

The priority for many big banks is a rule requiring them to hold capital equivalent to at least 3% of all assets. Worried about the rule’s impact during the pandemic, the Fed changed the calculation in 2020 ignoring deposits that banks held at the central bank, but finished this break this month of March. Since then, some banks have warned that growing deposits could force them to raise more capital or say no to deposits.

JPMorgan’s Jennifer Piepszak is now co-head of its consumer banking operations.


JP Morgan

“Raising capital against deposits and/or refusing deposits are not natural actions for banks and cannot be good for the system in the long run,” said Jennifer Piepszak, then chief financial officer of JPMorgan Chase & Co. , in a call with analysts in April. .

Banks have several options for offloading customer deposits, although they try not to offend their customers in the process.

One strategy is reverse tiering, offering clients lower returns for additional deposits. Asking customers to transfer funds to another, smaller bank is also an option, said Pete Gilchrist, executive vice president of Novantas Inc., which advises banks.


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“We’ve worked very successfully with our clients to explore and move some of these non-operating deposits,” said Emily Portney, chief financial officer of Bank of New York Mellon Corp.

In recent months, banks, including BNY Mellon, have focused on shifting customers from deposits to money market funds, which are common cash investments. Assets held in money market accounts, even those managed by the same bank, are treated differently under bank capital rules, which alleviates some of the regulatory pressure.

Flows to U.S. money market funds have surged in recent months, bringing total assets held in such funds to $4.61 trillion, slightly below the record set in May 2020, according to the Investment Company Institute. .

Money market funds, in turn, need new places to park all that new money and earn interest. But rock-bottom interest rates prompted them to hoard them at the Federal Reserve overnight, in a facility that earns them zero returns and has been largely ignored for the past three years. Funds stored overnight with the Federal Reserve Bank of New York surged in May and hit a record $497.4 billion on Tuesday.

CFOs say it makes sense to hold on to cash, for now.

“Having a little more money than you normally would always makes good business sense, because we’re not really out of the pandemic yet,” said Jeff Shepherd, chief financial officer of Advance Auto Parts Inc. , based in Raleigh, North Carolina.

Write to Nina Trentmann at [email protected] and David Benoit at [email protected]

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Darcy J. Skinner