The Fed Is Blowing A Dangerous Bank Deposit Bubble
Thursday, February 21, 2013 at 12:36PM
Contributed by Lee Adler, The Wall Street Examiner.
This is how Bloomberg reported one of the biggest stories of the year, “JPMorgan Leads U.S. Banks Lending Least Deposits in 5 Years“—and got it backwards:
The biggest U.S. banks including JPMorgan Chase & Co. and Citigroup Inc. are lending the smallest portion of their deposits in five years as cash floods in from savers and a slow economy damps demand from borrowers.
The average loan-to-deposit ratio for the top eight commercial banks fell to 84 percent in the fourth quarter from 87 percent a year earlier and 101 percent in 2007, according to data compiled by Credit Suisse Group AG. Lending as a proportion of deposits dropped at five of the banks and was unchanged at two, the data show.
Consumers and companies are reluctant to take on risk until they see more signs that business is improving, even as the Federal Reserve maintains near-record low interest rates designed to fuel growth. Putting more of the unused money to work could boost profit and help turn around the U.S. economy, whose 0.1 percent annualized drop in the fourth quarter was its worst showing since 2009.
These deposits aren’t about people taking cash out of mattresses and depositing it in the banks. This story should not be about the banks not lending, because that’s not true. They are. They have been growing loans at a measured pace between 3.5% and 5% a year since 2011. That is absolutely consistent with the growth of the economy, and dare I say, the potential growth of the economy. The story is not that loan growth is not keeping up with deposit growth. It’s that deposits are growing too fast for the economy. That’s dangerous, and the Fed is directly responsible.
Bloomberg actually reported the real story it but buried it in a single line midway through the report.
Reposted with permission.
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