This is the version that the rich are getting richer.
A record $ 2 trillion in cash gains hit US banks’ deposit accounts, as coronavirus first hit the US in January, according to FDIC Data,
The wall of money flowing into banks has no precedent in history: in April alone, deposits grew by $ 865 billion, more than the previous record for the entire year.
All of these achievements, one way or another, were triggered by the response to the pandemic: the government directed hundreds of billions of dollars to support small businesses and individuals through inspections of incentives and unemployment benefits. The Federal Reserve has launched a flurry of efforts to support financial markets, including an unlimited bond purchase program. And an uncertain future has prompted decision-makers, from two-person households to global corporations, to raise a ton of money.
According to the FDIC, more than two-thirds of the profits went to 25 of the largest institutions. And this was centered on the very top of the industry: according to the company, JPMorgan Chase, Bank of America and Citigroup, the largest US banks in terms of assets grew much faster than other industries in the first quarter.
“No matter how you look at it, this growth was completely unusual,” said Brian Foran, an analyst at Autonomous Research. “Banks are flooded with cash, they are like Scrooge McDuck floating in money.”
There are several reasons American megabanks – the survivors of the last crisis of 2008 – were the main beneficiaries of Bonanza deposits. When states began to close in March, corporations including Boeing and Ford immediately drew tens of billions of dollars from credit lines, and this money was originally parked in banks issuing these loans.
Large banks also serviced the majority of clients through the Payroll Protection Program, which was directed by the government for $ 660 billion to support small businesses. Since lenders mainly served existing customers, the money first went to the bank accounts of firms that promoted loans.
Institutions known as trust banks, which are custodians for asset management investments such as BlackRock or Fidelity, received deposits when the Fed bought a bill to buy out billions of dollars of mortgage-backed securities. JPMorgan and Citigroup have large depository divisions.
And, of course, megabanks simply have the most retail customers in the United States; ordinary people who have little opportunity to spend money on shelter at home. According to the US Bureau of Economic Analysis, last month the personal savings rate reached a record 33%. Personal income this month actually increased by 10.5%, thanks to incentive checks of $ 1,200 and unemployment benefits, which in some cases exceeded the employee’s regular income.
All this money went to bank accounts. Bank of America CEO Brian Moynihan told CNBC last month that there were actually 40% more money in current accounts with a balance of less than $ 5,000 before the pandemic.
Megabanks with coast-to-coast branches relying on plentiful deposits as a key advantage in the post-financial crisis era. They are one of the cheapest sources of financing loans, helping the industry to earn record profits even at low interest rates.
However, according to Faran, banks that will carefully lend money at the height of the recession are running out of options for the growing amount of money.
“Many banks say,“ Frankly, we can do little about it right now, ”he said. “They have more contributions than they know what to do.”
If the boom in deposits is just one sign of steps taken to mitigate the financial damage from the pandemic, it remains to be seen what the final consequences will be for the historic surge in government spending. Some experts see the collapse of the dollar combined with rising inflation. Others see a bubble in the stock market in the making.
According to Faran, one of the consequences for depositors will be more immediate: banks will surely lower their already insignificant interest rates, since they do not need more of your money.
With the participation of Nate Rattner of CNBC.