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A Tidal Wave of Money Leaving Banks Will Kill Bank Profits and Lending

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44 comments on A Tidal Wave of Money Leaving Banks Will Kill Bank Profits and Lending

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Spread between bank deposit rates and money market funds from Tweet below.

Jim Bianco has a 21-Tweet Thread on what’s going on with bank deposits. I chimed in on a couple of the Tweets. Here are some of the most important ideas.

The “bank walk” becomes a “bank powerwalk” to 5%.

More Bank Failures?

“To be clear, a bank walk will NOT lead to another bank failure, wrong metric. But it will kill their profitability, especially the smaller banks.“

Giant Bank Sucking Sound

Question On Stopping the Run 

Mish: “Banks need NEW Deposits because they already locked up existing deposits in 10-YR notes at 2.0% or so. Offering 3% will not attract much new money with others offering 5%.“

Agreement From Bianco

Bianco: “Exactly correct: They [banks] locked up securities and loans that generate much lower interest rates. Somewhere around 3%. Over time they mature and get rolled into higher rates. But not now. So, they lose money by trying to compete with market rates. This explains why the bank stocks cannot rally.“

Second Question

Bianco Conclusion

The “bank walk’s” cumulative impact on markets, the economy, and lending. It will be a significant drag later this year.

Moody’s Downgrades 11 Regional Banks

Please note Moody’s Downgrades 11 Regional Banks, Including Zions, U.S. Bank, Western Alliance.

Regional banks, Moody’s said, are more exposed to hard-hit commercial real estate. U.S. banks hold about half of total CRE debt outstanding, and some are concentrated in construction, office, or land development.

U.S. Bank has a “relatively low capitalization” as well as unrealized losses on its securities, Moody’s said.  Zions has “significant” unrealized losses on its securities portfolio and its capital has deteriorated, Moody’s said.

Downgraded Banks

  • U.S. Bancorp USB, with $682 billion in assets
  • Zions Bancorp ZION with $89 billion in assets.
  • Bank of Hawaii Corp., BOH with $24 billion in assets.
  • Western Alliance Bancorp WAL, received a two-notch downgrade.
  • First Republic Bank, which faced a run last month, had its preferred-stock rating cut.
  • Six More: Associated Banc-Corp., Comerica Inc., First Hawaiian Inc., Intrust Financial Corp, Washington Federal Inc., UMB Financial Corp.

Banks will not be taking any extra risks. Nor will larger banks that also face the “powerwalk”. This will pressure bank lending across the board.

Like it or not, the Fed is purposely angling for recession to cure inflation. 

And the Fed does not have an inflation ally in the White House. Biden is doing everything possible to fuel inflation with inept Green policies. 

Biden’s Trillion Dollar Clean Energy Grab Bag in Pictures and Quotes

For discussion of the drastically misnamed Inflation Reduction Act, please see Biden’s Trillion Dollar Clean Energy Grab Bag in Pictures and Quotes

Strangest Yield Curve in History

For discussion of how the debt ceiling has impacted the yield curve, please see The Strangest US Treasury Yield Curve in History, What’s Going On?

Finally, please recall Fed Minutes Now Predict a Recession This Year Along With Higher Unemployment

This post originated at MishTalk.Com

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44 Comments
Newest
Oldest Most Voted
Dubronik
Dubronik
3 years ago
JP Morgan Chase is an interesting case of screwing their customers with the CD rates. If you look at their website Chase is running a offer of 3-month CD paying 4% if you deposit a minimum of $100K. However, if you look at other CD Terms are all other the place. The good news is that if you buy their CDs from…let’s say…Your brokerage account, could can get lucky and lock a 12-month CD for 5.15% and the minimum is $1K…So you and I can buy it outside…But if you are a loyal customer…Sorry, but you cannot get that rate….Many banks are doing the same thing…
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Rbm
Rbm
3 years ago
Well fargo set a monthly transfer limit. Think it was 15000 two day and 5000 on day. Or something like that.
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Dean2020
Dean2020
3 years ago
Reply to  Rbm
If you buy treasuries there is no limit.
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Rbm
Rbm
3 years ago
Reply to  Dean2020
Yep
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8dots
8dots
3 years ago
Alexander Hamilton central bank didn’t pay interest to banks, because through history gov steal money from their citizen, give them IOU, deflate the value of money and bankrupt their citizens. Bernanke got Nobel Prize for inventing a “new” system, “reserves base money creation” – vs fractional reserves” – to steal money from our bank account. Other central banks herd together, imitate Prof Bernanke “new” invention for a long time. the global central banks are roach motels.
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Cocoa
Cocoa
3 years ago
Banks have FDIC insurance and it expands every time a bank goes toes up. MMF are SIPC insured. You can imagine how thats going to go if 2008 style crash reoccurs. So it pays 5% because it’s not “safe” too.
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xbizo
xbizo
3 years ago
Interesting bank dynamic at play. Pay more interest to savers, and you attract new deposits which allows you to lend and puts your competition (that won’t pay high savings rates) at an increasing disadvantage. First mover advantage?
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8dots
8dots
3 years ago
The Fed will raid in on your bank account. The Fed will not raid in on small regional banks.
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RonJ
RonJ
3 years ago
“Strangest Yield Curve in History”
Martin Armstrong noted the “lowest rates in 5,000 years.” That goes back to 3,000 B.C. Seems rates got milked for all they were worth. Throw in economic lock downs with mass money printing and things do get strange.
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Mike33
Mike33
3 years ago
And the coming recession kills middle class jobs…FED pivots, cuts, cuts, cuts…Wall Street once again borrows cheap money and leverages up 20-30X…
Rinse & Repeat
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Doug78
Doug78
3 years ago
Three things:
1) The money market consists of government short-term paper plus corporate short-term paper so companies can finance themselves for a time using commercial paper.
2) If banks offered depositors a decent interest on people’s money then there would not be a problem for them to lend to companies.
3) Companies that depend on VC investment to finance their burn will be in return burned. If you live by the sword you will die by the sword.
After a decade and more of easy money banks will have to learn how to make money by taking deposits and paying 3% and loaning it out at 5% and on the golf course by 4 PM (with “clients” of course”).
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PapaDave
PapaDave
3 years ago
Went back to check out some other articles you wrote about banks. Its always a pending disaster story. But the story changes over time. Here’s a small sample.
Free Money! Banks Paid $22 Billion to Not Lend?
Excess reserves of depository institutions peaked at $2.7 trillion in August of 2014. By December of 2016, excess reserves fell to $1.9 trillion but have since climbed back to $2.2 trillion.
• MISHTALK
• APR 17, 2017
U.S. Deposit Drain Coming Up? Merge Before It’s Too Late?
J.P. Morgan is offering regional banks some interesting advice: Partner Up as U.S. Deposit Drain Looms.
• MISHTALK
• MAY 9, 2017
Banks are So Stuffed With Cash They Tell Companies: No More Deposits
Banks are so overloaded with cash they are losing money on deposits.
• MISH
• JUN 10, 2021
Whose Money is the Bank Lending?
A reader asked that question today. To those unfamiliar with the answer, it might seem shocking: Nobody’s.
• MISH
• JUL 4, 2022
Q: “I am a bank and I make loans. Whose money am I lending?”
A: Nobody’s
You are creating new money. Lending creates money out of nothing, and that money is deposited somewhere, creating deposits.
Bank lending creates money that did not exist before. To the extent that any “reserves” are needed, the Fed can manufacture them at will and then some via QE as the above chart shows.
Banks used to collect free money on “excess reserves” now it’s “reserves”
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Mish
Mish
3 years ago
Reply to  PapaDave
everyone of those articles is correct.
Banks are making free money – or at least they could have. Instead they plowed into long-term treasuries.
Instead they lost money.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  Mish
The banks are not losing money on safe Treasury investments.
Unless a depositor wants some of his money back right now.
There’s that old military command that no officer ever wanted to hear; “Hold until relieved.”
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Doug78
Doug78
3 years ago
Reply to  Lisa_Hooker
Most if not almost most had bought interest rate insurance by the many various and cheap ways available.
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TexasTim65
TexasTim65
3 years ago
Reply to  Lisa_Hooker
You have to define ‘losing’.
If you only get 1% interest on the treasuries you hold, you technically aren’t losing money. But being locked into a 1% interest bearing treasury when there are newer ones paying higher rates means you are definitely ‘losing money’ due to inflation and other current investment opportunities that are paying more.
In other words, they are losing because they locked into 10 year treasuries at 1%.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  TexasTim65
Yeah, I know.
I have lost so much money in stocks that I should have but never bought.
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PapaDave
PapaDave
3 years ago
Reply to  Mish
You misunderstand; I didn’t say they were wrong. I merely said the story changes over time. Which is why I made sure to add the dates. I agree with almost everything you said in those articles.
The only thing I might question is why lending will “suffer” because of deposits leaving, since, as you always say, banks don’t lend from their deposits. Thanks.
“A Tidal Wave of Money Leaving Banks Will Kill Bank Profits and Lending”
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Dominic69
Dominic69
3 years ago
A simple question if someone can answer.
Do the MMFs have accounts directly at the Fed? What I mean is, all these deposits (meaning reserves on the bank asset side) “flowing out” of the banks where do they go? Reserves cannot leave the banking system (unless they are destroyed by the Fed when it sells assets), they can only slosh around so some banks somewhere (banks serving these MMFs and other financial institutions involved in this “migration”) are at the receiving end of these reserves (deposits) “leaving” the banking system. These financial transfers have to be settled with reserves.
Am I missing something?
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Doug78
Doug78
3 years ago
Reply to  Dominic69
I think Mish is saying that the money is not destroyed but only parked in a way that it doesn’t recirculate back into the economy.
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MPO45v2
MPO45v2
3 years ago
Very timely post, I just moved money out of JP Chase over to Apple/Goldman. Apple has a 4.15% saving account and Chase has crap. Chase may be too big to fail but it isn’t too big to lose depositors money. I think once the fear of bank runs is over money will flee to the highest yields. 9 days 2 hours till next Fed meeting.
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Mjs357
Mjs357
3 years ago
Reply to  MPO45v2
I closed my Wells account mainly because of their assist to First Republic. But, also for garbage rates. Navy Federal Credit Union had a good CD. I no longer have a comm bank account, all credit unions.
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Doug78
Doug78
3 years ago
Reply to  MPO45v2
That’s a good question. Is Apple Bank in the category of “too big to fail”? Somehow I don’t think so.
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Columbo
Columbo
3 years ago
Reply to  MPO45v2
Also, a Vanguard Government MMF has a money market rate that’s paying 4.77%.
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Maximus_Minimus
Maximus_Minimus
3 years ago
Bank are no more willing to part with their 1% savings account rate than home owners with their 100% pandemic home price gains.
Something’s gonna give.
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Bam_Man
Bam_Man
3 years ago
Reply to  Maximus_Minimus
The Savings Account rate at Chase, Citi and BofA is .01% not 1%.
And yet there are those who wonder “Why are people with money spending like drunken sailors?”.
Maybe part of the answer is “It makes no sense to save when you are earning .01% and inflation is close to double-digits”.
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Maximus_Minimus
Maximus_Minimus
3 years ago
Reply to  Bam_Man
About spending like drunken sailors, I would add, residual wealth effect. It will take some real beating until the morale improves.
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Salmo Trutta
Salmo Trutta
3 years ago
See: All Clear – Fed Guy
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Mjs357
Mjs357
3 years ago
Reply to  Salmo Trutta
Didn’t former 50 intelligence officers say that the Hunter Biden laptop was Russian disinformation?. “Former Fed” there is no such thing. Now, this is a fallacy argument based simply on perception. But after reading the article, I stand by my comment. He’s a shill.
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KidHorn
KidHorn
3 years ago
You can get competitive rates on 12 months CDs. There’s typically a 3 months of interest penalty if you withdrawal early. A MM account paying the same is better because most don’t have an early withdrawal penalty, but when I’ve looked, the MM rates are lower than 12 mo CD rates.
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MPO45v2
MPO45v2
3 years ago
Reply to  KidHorn
Locking money for 12 months while the Fed is raising rates is a bad idea. There is now talk of the Fed hiking in June which I am sure will get scoffed at by a few people here.
Laddering is a better approach if you must purchase a 12 month CD.
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Salmo Trutta
Salmo Trutta
3 years ago
NSA M2 has fallen from 21380.1 in Oct 22 to 21098.8 in Feb 2023
But large CDs have grown from 1583.0 in Nov 22 to 1840.7 in Feb 23
That’s a wash, 281.3 vs. 257.7
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Captain Ahab
Captain Ahab
3 years ago
While I am heavy metal paying 0.0%, when I can get 4.6 to 4.8% on a 30-day CD; yes, bank deposit rates are a joke. It takes five minutes (or less) to recycle every month. I also stay way under the limit–FDIC is worthless. With staggered CDs of short duration, cash is readily available if bargains appear.
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Avery
Avery
3 years ago
3-6-3
Pay 3% on deposits.
Lend at 6%.
Tee off on golf course at 3pm.
Worked for decades. A monkey can do it, but not a $25,000,000 / year CEO. It’s ok, though, the TBTFs will continue their 15+ year federal bailout plan. After all, what would I ever do without those rats?
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HippyDippy
HippyDippy
3 years ago
In every post there is naught but doom, and for good reason. Add to the FEDs desire to crush the economy it created, the political woes of the Biden administration. The rest of his term will be locked down in fighting corruption charges. Probably not get any punishment though. After all, if he’s impeached, we get Kamala. Also, if impeached, he would probably not be convicted as it would seem unseemly to jail a president. Though I personally think it would be justice if all of the presidents were jailed; but that’s just me. I personally don’t have a dog in the corruption scandal, as I think they are all corrupt and this is just a dog and pony show to distract. Just look at all the conflicts of interests the rest of the government officials have. On both sides of the aisle. Between the drama of the debt ceiling, the possible impeachment of a president, and the actions of every single leader on the global stage; I’m still sticking with my prediction we’ll have a currency crushing depression that will lead to a new digital currency tied to a social credit system. Not like the slaves will ever revolt. They refuse to think outside of their party lines. Which is why they’re slaves.
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TexasTim65
TexasTim65
3 years ago
Reply to  HippyDippy
Impeached != Removal. See Clinton, Bill.
But yes, the rest of his term will be fighting corruption charges now that the Republicans control the House. Unfortunately it’s too late for things like the Inflation Reduction Act which is set to spend oodles of money we don’t have on things we don’t need.
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Doug78
Doug78
3 years ago
Reply to  TexasTim65
Hunter is toast. Just a matter of how long it takes.
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TexasTim65
TexasTim65
3 years ago
Reply to  Doug78
Are you allowed to pardon your family? If so, expect Dad to pardon him.
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Doug78
Doug78
3 years ago
Reply to  TexasTim65
He has to be pardoned for a specific crime. A blanket pardon is not allowed by law and Hunter has a lot of baggage much which will crop up in the coming years. Also Biden himself is involved so it is complicated.
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Captain Ahab
Captain Ahab
3 years ago
Reply to  HippyDippy
Wanna bet Biden pardons Hunter? LMAO
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Zardoz
Zardoz
3 years ago
Reply to  Captain Ahab
I doubt it, the charges aren’t that bad. He won’t go to jail
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Mjs357
Mjs357
3 years ago
Reply to  Zardoz
Would LOVE to see a TX judge hold him accountable for not paying his child support. Hunter is hiding in the WH to avoid the inevitable “you have been served”.
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Captain Ahab
Captain Ahab
3 years ago
Reply to  Zardoz
You really believe that what you hear on the msm is all there is? Or are not thinking critically? There are too signs of a massive cover-up and the leaks have just started the SS Biden is going down. If the repubs have the guts to go against the msm.
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ThinkEconomically
ThinkEconomically
3 years ago
How come I never read anything about this on -> https://www.cnn.com/business ? LOL. Yes, I am being facetious.
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