The Corner

Banking & Finance

There’s So Much Cash in Our Economy That Banks Don’t Want More Deposits

The Wall Street Journal reports that bank are telling their corporate customers to stop making deposits. Yes, you’re reading that correctly: Banks don’t want more deposits.

The basic idea of banking is to take in money from deposits and lend it out at interest to borrowers. But with interest rates near zero, banks hardly make any money doing that, so taking in more money from deposits doesn’t do much for them.

Corporations are banks’ biggest customers, so they are the ones driving what the Journal calls a “surge” in deposits:

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

So we’ve got households with trillions in savings who are paying off debt (which is great news, by the way). We’ve got corporations with trillions in deposits who are sticking with the conservative investment strategy they adopted during the pandemic. And now we’ve got banks (banks!) saying they don’t want more money. The Biden administration’s response is to flood the economy with more cash? There may very well be a political justification for that policy aim, but it’s hard to see an economic one.

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