Banks have capped the amount of deposits they want to make with businesses, so much so that banks don’t know what to do with them, The Wall Street Journal reported Wednesday (June 9).
Business executives were rushing to raise funds when the pandemic started last year and banks have held them ever since.
Because businesses are reluctant to borrow from them, banks cannot turn money into income-generating loans as they normally would, which has strained their profit margins.
In light of this, some banks have started to urge their corporate clients to spend their money on their business or move it elsewhere.
Bankers believed that improving the economy would reduce the tendency of businesses in the pandemic era to hold onto cash. However, deposits have not slowed down even in recent weeks as vaccines have continued to come out and things have continued to open.
According to some CFOs, like Matthew Ellis, CFO of telecommunications company Verizon Communications, the reason is that they just aren’t ready to implement big changes. Ellis said his business has been operating with high cash balances for a year now. For this reason, no decision has been made on whether or when to change this, he added.
Banks keen to offload money include JPMorgan Chase and Citigroup, PYMNTS reported in May. Relaxed capital rules were put in place at the start of the pandemic, which had the effect of helping lenders cope with the increase in deposits they were seeing.
However, the Fed ended this last month and some banks now need to take a closer look at who they let to deposit.
Chief Financial Officer of JPMorgan Jennifer piepszak said on an earnings call in March that this was an unusual practice for banks, saying it would not be positive if continued in the long term.