There is bad news for those who withdrew funds on Bank Transfer Day to punish the targets of their ire.
Most banks don't really need their money — at least not right now.
The brutal truth is that the banking industry has more deposits than it can realistically handle. Good loan opportunities are hard to come by, investing in long-term bonds and munis remains a risky proposition, and many bankers are intimidated about testing the waters by buying corporate notes.
I have been to several conferences in recent weeks attended by chief executives of banks. Though most are still adamant that they want the customer relationship, you discover with very little prodding that bankers have their hands full putting deposits to work. The Federal Reserve certainly hasn't helped, vowing in August to keep the fed funds rate near zero until 2013.
"We're going to have this cash for two more years. What are we going to do with it?" Craig Meader, the chairman and CEO of First National Bank of Kansas in Waverly, said at the American Bankers Association's annual meeting in San Antonio. He made the comment after bemoaning the absence of good investments during a panel discussion on the future of banking.
"The industry certainly doesn't need more deposits today," Fred Cannon, the chief equity strategist at KBW Inc.'s Keefe, Bruyette & Woods, declared at an American Banker analyst roundtable last week. "The Fed made sure of that. The industry is awash in liquidity, which has turned into a problem for many banks across the country."
Many bankers are doing what they can to discourage big inflows of deposits. Bank Transfer Day notwithstanding, many feel like Mickey Mouse in the Sorcerer's Apprentice scene in Fantasia; the brooms keep dumping water into the tower as Mickey futilely attempts to toss water out the window.
"We keep driving down the rates on our deposits, but every time we do that it seems like more deposits come in," Michael Bauer, the chief credit officer at Community Bank Shares in New Albany, Ind., said in an interview Tuesday. The notion of hot money — when a customer leaves a bank after finding a higher rate elsewhere — seems to have gone away, too. "It has gotten to the point that customers don't even shop around for rates anymore," Bauer said.
"We've had to suppress deposit growth a little bit," added Mark Long, the president and CEO at First Commercial Bank in Sequin, Texas. His bank is facing stiff competition from bigger banks when it comes to courting and keeping its best borrowers, he said in an interview Tuesday.
While small banks don't necessarily want or need deposits, consumers seem more eager than ever to move their money to smaller banks. Based on recent data from the Independent Community Bankers of America, the group's "community bank locator" website drew nearly 11,000 hits from Oct. 8 to Nov. 8. (A year earlier, the site drew less than 400 hits.)
It would seem at first glance that banks would be sitting pretty in a low-rate environment, particularly when interest on deposit accounts hovers at historical lows. But holding onto these largely idle deposits is costing banks more than you might think.
Dan Geller, an executive vice president at Market Rates Insight in San Anselmo, Calif., estimates that federal deposit insurance is costing banks $1 for every $1,000 in deposits they hold. Banks are also incurring at least $200 in annual overhead costs for each checking account, regardless of whether a balance is $100 or $10,000, he said.
Well, count on thousands more Americans "helping" these right wing treasonous banks daily from now on.
Missing from the article is the argument that banks should be making loans, not acting as a brokerage for its own account. Instead, with money so cheap, they can just look for safe investments where they can earn whatever the spread is to cover operating costs and give the shareholders a dividend.
At some point, either the economy will collapse or recover. If is collapses the discussion is moot. If it recovers, then there will e a scramble to get the 15% credit card customer, and to make the 6% new car and 13% used car loan. Oh, and the adjustable mortgages so the hedge funds can securitize and sell them as bonds (while betting against them).
The movement of funds out of the BofA, JPM, Wells, Citi, etc will boost earning in the short-term. When and if things move back to the old normal, each of these institutions will have one business left - Investment Banking which is what they want anyway. Deposits were only the means to get the money to "invest" and trade for the institutions own account.
One way to change the dynamic - bring back Glass-Steagall. Suddenly, depositors will be important again. Until then, the banks will have a holiday. Well, maybe only until Dodd-Frank takes hold, if ever, and if true banking reform is passed by Congress. But wait - there goes another little flying piggy!
Richard Isacoff
rii@isacofflaw.com