At U.S. corporations, cash is still king but it has lost a bit of its power.
Big business has continued to favor high holdings of bank deposits, even as the rush during the financial crisis to defensive, highly liquid positions has eased. Ratios of cash to assets and borrowing remain high by historical standards, but that appears to be more a continuation of a multi-decade trend than a reaction to market turmoil. (The following graphic shows balance sheet ratios for nonfinancial corporations on one tab and total deposit sums on the other. Interactive controls are described in the captions. Text continues below.)
Holdings of currency, deposits and money market fund shares hit a half-century high at 5.1% of assets at nonfinancial corporations at the end of 2009; the number had retreated to 4.5% by the end of last year, according to Federal Reserve data.
Those figures have been whipsawed by changes in the market value of corporate real estate: tumbling property prices in 2009 left other assets accounting for bigger proportions of balance sheets.
When the figures are viewed another way a similar liquidity picture emerges. Cash to corporate borrowing fell steeply during the financial crisis before bouncing back to 18.2% at the end of 2009. Those moves appear to reflect a pattern in which firms drew down cash reserves at a time when loans were hard to come by and then built up precautionary balances. By the end of last year, the ratio had drifted back down to 16.6%.
Cash to borrowing and the broader measure used by the Fed of liquid assets to short-term liabilities are both still high. However, the ratios have been climbing since the 1980s. Economists believe the trend has been driven by factors such as: the desire of tech executives to maintain cash cushions that will help them navigate uncertain research-and-development cycles; and the stockpiling of cash abroad by multinational corporations seeking to minimize tax liabilities.
Overall, corporate borrowing – including borrowing from banks – has been robust of late, despite the sluggish economy and job market.
Nothing has materialized to reverse the sometimes dramatic growth in deposits over the last few years. That includes the anticlimactic expiration of unlimited deposit insurance at the end of last year. Total assets in money market funds, a substitute for bank deposits, were roughly flat between early December and early March at $2.6 trillion.
Corporate and household money market holdings increased in the fourth quarter, but so did their holdings of currency and transaction deposits.