Too Big to Deposit

The Fed hasn’t (yet) resorted to negative interest rates to stimulate spending, but US banks are adopting de facto negative interest on certain large deposits:

State Street Corp., the Boston bank that manages assets for institutional investors, for the first time has begun charging some customers for large dollar deposits, people familiar with the matter said. J.P. Morgan Chase & Co., the nation’s largest bank by assets, has cut unwanted deposits by more than $150 billion this year, in part by charging fees.

The developments underscore a deepening conflict over cash. Many businesses have large sums on hand and opportunities to profitably invest it appear scarce. But banks don’t want certain kinds of cash either, judging it costly to keep, and some are imposing fees after jawboning customers to move it.

The banks’ actions are driven by profit-crunching low interest rates and regulations adopted since the financial crisis to gird banks against funding disruptions.

Banks are supposedly in the business of taking deposits in order to lend money to people wanting to buy or improve a home, or to people wanting to start or expand a business.

Deposits grow, business create products and services and jobs, the country’s physical capital grows and improves.

But it doesn’t matter how much money the Fed prints or how low it keeps rates — if people aren’t working, then the money is just going to stay parked in the banks.

And apparently the banks are getting sick of it.