How the coronavirus pandemic made America’s big banks even bigger: Panicked customers deposited a record $1 TRILLION during the first quarter as the economy plunged into recession
- US banks saw a record $1trillion in deposits in the first quarter as the nation went into lockdown to stem the spread of COVID-19 and the economy ground to a halt
- More than half of the money – $590billion – went to America’s four biggest banks: JPMorgan Chase, Bank of America Corp, Wells Fargo and Citigroup
- A large portion of the deposits were made over a two-week span in March as companies drew down on credit lines and stockpiled cash to brace for recession
- Analysts say the flood of deposits exemplifies how banks are seen as a refuge for anxious customers unsure of when lockdowns will be lifted
- Here’s how to help people impacted by Covid-19
The coronavirus pandemic is making America’s big banks even bigger.
US banks took in a record $1trillion in deposits from companies and consumers during the first quarter, which saw markets plunged into chaos and the economy grind to a halt as the nation went into lockdown to curb the spread of COVID-19.
More than half of the money went to America’s four biggest banks: JPMorgan Chase & Co, Bank of America Corp, Wells Fargo & Co. and Citigroup Inc.
Their aggregate gain of $590billion in deposits is nearly double the previous quarterly record of $313billion for the entire US banking industry, according Federal Deposit Insurance Corp (FDIC) data.
A large portion of the deposits were made over a two-week span in March, according to a Wall Street Journal analysis of Federal Reserve data, as companies frantically drained credit lines and stockpiled cash to brace for a severe recession.
WSJ spoke to leading financial analysts who say the dramatic spike in deposits exemplifies how different the current financial crisis is from the Great Recession in 2008.
In the wake of that market crash, customers rushed to move their money out of big banks whose greedy executives were blamed for nearly destroying the economy.
The opposite has occurred in the current crisis, as anxious customers look to banks as a refuge in the economic storm.
‘We believe companies viewed us as a safe haven in this period of stress,’ Bank of America’s Chief Financial Officer Paul Donofrio said on a conference call with analysts last week, according to WSJ.
US banks took in a record $1trillion in deposits from companies and consumers during the first quarter, which saw markets plunged into chaos and the economy grind to a halt as the nation went into lockdown to curb the spread of COVID-19. The graph above shows total deposits at the nation’s largest banks at the end of the fourth quarter in 2019 and the first quarter in 2020
Banks’ loan books ballooned in March, with JPMorgan, Bank of America and Wells Fargo each surpassing $1trillion in loans for the first time.
Commercial loans across Bank of America, Citigroup, JPMorgan and Wells Fargo grew by an aggregate $235billion in the first quarter, according to the FDIC, exceeding the industry’s media annual gain since 1984.
Much of the borrowed funds ending up in deposit accounts at the same banks, executives said when they reported first-quarter earnings last week.
The bulk of the loan growth was the result of companies drawing down on – or accessing more of – their credit lines.
Citigroup borrowers drew down $32billion on credit lines in the first quarter.
The corresponding spike in deposits accounted for about a third of the $92billion in corporate deposits the bank saw in March, Chief Financial Officer Mark Mason said.
Bank of America’s Chief Executive Brian Moynihan said the bank’s corporate borrowers drew down $67billion in the first quarter – 75 percent of which ended up in deposit accounts at the bank.
JPMorgan credited its deposit surge of $273billion to the $55billion in credit draws its customers made, as well as the $380billion in investment-grade bonds it helped sell in the first quarter.
Banks’ loan books ballooned in March, with JPMorgan, Bank of America and Wells Fargo each surpassing $1trillion in loans for the first time
Barclays PLC analyst Jason Goldberg likened JPMorgan’s deposit surge – the largest of any US bank – to swallowing an entire other top-10 bank.
‘It’s taken some of those banks 100 years to get into the top 10,’ Goldberg said.
Banks are now facing the challenge of figuring out how to handle the unprecedented number of new deposits whilst unsure how long they will remain in the vault.
More deposits means more money available to be loaned out. Banks make money on the spread between the interest they pay depositors and the interest charged to lenders.
But when deposits aren’t stable, banks have to be careful about the loans they grant to avoid getting stuck if deposits dry up.
The loan-to-deposit ratio across the industry, which is used to assess banks’ liquidity, is currently at an all-time low, indicating that banks are being exceedingly cautious, Goldberg said.