I spoke too soon last week when I reported that bank deposit rates were unlikely to follow fed rate hike anytime soon. According to the Wall Street Journal, “J.P. Morgan Chase & Co. will raise deposit rates for some of its biggest clients in January, according to a person familiar with the matter.”
This isn’t surprising when you consider that US Banks currently hold over $10.7 trillion in domestic deposits, a figure found in the FDIC’s Quarterly Banking Profile released in September. This excludes $1.4 trillion in foreign office deposits and other non-FDIC insured banks.
With those numbers combined (12.1 trillion) and only $8.64 trillion in loans outstanding, this means only about 71% of domestic deposits are outstanding loans. In other words, there is an excess of $3 trillion dollars in deposits. Here’s what $1 trillion looks like, by the way.
This leaves little incentive to pay extra interest on this excess cash. There is, however, an incentive to keep institutional clients from withdrawing their cash, which is why these deposit rate increases will only apply to operational accounts. Operational accounts are considered “sticky”, making them less likely to be removed during a crisis or lost to a competitor. Think of what a hassle it is to update all your online subscriptions when you get a new debit card. Now scale that headache to a corporate level.
Other large banks have been slow to respond and retail clients should continue to expect the same unhurried change in their deposit accounts.