You may remember an article I wrote in June of this year (we got lots of comments on it) about my Dad receiving a letter in the mail telling him that if the cash portion of his stock brokerage balance fell below $125,000, he would be charged a yearly fee of $500.00 to keep his account open. (See “About That Letter My Dad Got in the Mail Friday.”) Now, it looks like regular banks (not just stock accounts) are doing the same.
According to The Wall Street Journal, big banks like JPMorgan Chase & Co. (NYSE/JPM), Citigroup Inc. (NYSE/C), HSBC Holdings plc (NYSE/HSBC), Deutsche Bank AG (NYSE/DB), and Bank of America Corporation (NYSE/BAC) are discretely talking to their clients and telling them that new regulations are making their deposits “less profitable.” (Source: The Wall Street Journal, December 7, 2014.)
In some cases, these banks have reached out to their big clients, like the large American corporations, hedge funds, and insurance companies, and have told them that they will start charging fees on their client cash balances—something that was free before. Officials at the banks are supposedly working with their clients to find alternatives for their cash deposits.
Cash deposits are the foundation of the banking system. Why would big banks not want them? In theory, higher cash deposits mean banks can loan more out to their other clients, earning the banks interest income. But this isn’t happening.
Quantitative Easing and the Banking Sector
One reason banks do not want more cash deposits is because they have too much money on deposit already…courtesy of the Federal Reserve’s quantitative easing, which indirectly built up the balance sheets of many big banks.
These days, the more customer cash balances banks hold, the more prone they are to regulations and the more reserves they need to hold in the event of bank runs. It’s just not profitable for banks to have too much in customer cash deposits anymore.
And instead of large companies and non-bank financial institutions keeping cash deposited at the big banks, wouldn’t the Fed rather see that money invested in other assets (like business expansion, the stock market, and real estate) to keep the economy moving?
Is Money Worth Anything Anymore?
Maybe there’s just too much cash in the financial system and the big banks don’t want to hold so much of it if: 1) it doesn’t provide a return to the banks because they are worried about the risk in lending it out; 2) they have too much of it; and 3) regulations about holding too much in cash deposits are becoming too onerous.
This might sound harsh, but what is cash worth if banks are not willing to hold it or if banks want to charge a fee to hold it? Is it any wonder the stock market has gotten so high?
With all this in mind, I continue to see quality gold-producing stocks as a great buy at their current depressed prices. After all, if you are getting punished to hold cash in a bank, you need to look at an alternative “storage of wealth,” as cash surely isn’t worth what it used to be.