American banks are in reverse liquidity crisis (Photo: Cuban newspaper)
There is an unusual situation running across the banks of the United States. When there is an economic recession, the crisis that arises usually leads banks to raise money, to benefit from it in a context conducive to this work. But the situation caused by the Coronavirus was different, as it caused a reverse liquidity crisis in the United States.
The crux of the matter is that US banks have so much money that they can barely make a profit. One of the main intentions of banks to attract money is that it is through these that they can grant loans and receive interest. But this profit has decreased significantly in the past year.
The reasons are many and they all converged at the same time, which exacerbated the problem for the banks: the capital requirements that were approved after the 2008 crisis, the economic instability as a result of the epidemic, and the government’s incentive policy to confront the economic implications of this. Coronavirus.
In order to stimulate activity and the movement of funds, the Federal Reserve has kept interest rates steady since March at zero, which benefited residents, but affected the profits of financial institutions.
But even though interest remains at zero, banks have not had many opportunities to move their money through loans and credits as demand has fallen.
The prolonged spread of the epidemic and the consequent economic insecurity, which may last longer, has generated reserves in the population. Many fear running into debt without knowing when they will be able to pay it off. People have devoted themselves more than before to austerity and thrift, due to the uncertainty of what might happen tomorrow.
“People are literally accumulating dollars in banks,” he stressed. BBC Mondo Nathan Stovall, an expert on the US financial system at S&P Global.
In addition to the above, the stimulus package approved by the government, which includes the purchase of bonds issued by the entities and direct payments to families and companies. This was a relief to the family economy, and allowed people not to urgently seek financial assistance from banks.
Lots of money, less traffic
Some banks required their customers to transfer part of their money to another party (Photo: Cuban newspaper)
Financial institutions such as JPMorgan, Bank of America and Citigroup said they did not want to receive more money from their customers, as they entered more than $ 1 trillion in deposits in 2020 and the loan-per-deposit ratio fell to its lowest historical levels, only by more than 60%.
In the data to BBC MondoJimmy Dimon, chief executive of JP Morgan, said that this historic investment firm had asked many of the companies with the largest amount of funds on deposit to transfer it to other entities, until it reduced its deposit base by $ 200 billion.
“The biggest banks in the country are so overwhelmed with money that some are starting to refuse deposits and we can see that others are starting to do that too,” Nathan Stovall told English media.
Not only do banks face more difficulties in making deposits profitable, but increasing them requires them to increase the capital with which they have to support them. In this unfavorable context, many sector executives are asking the authorities to soften the demands.
According to JP Morgan CFO Jennifer Piepszak, what is at risk is not the vitality of the financial system, which he considers strong, but the amount of benefits financial institutions can get.
“The security of the system is a priority for the government, which wants the banks to be in a position to grant loans to stimulate the economy, and of course the banks are ready for that,” he said.
How are customers affected?
“Some banks may ask them to look elsewhere, but there will always be someone willing to receive the money,” Stoval said.
The main result has been discussed for clients for months: Those whose savings have been deposited in banks receive almost no profit for them. Experts do not expect this situation to change anytime soon.
“This situation could push many small savers to look for high-risk products and investments,” Stoval notes, as the rise in prices of highly volatile assets, such as Bitcoin, appears to indicate this.
