Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Small Banks See Windfall as Big Banks Shun Deposits

The rush to cash and moves out of European banks is creating problems for some of the biggest banks in the U.S.

Corporate money managers have been pulling deposits from European banks and redeeming shares in money-market funds with European exposure, according to my sources. But some of the biggest banks aren't prepared for this rush of hot money, which can be costly thanks to fees on deposit insurance and very low short-term interest rates.

The problem, bankers tell me, is that short-term interest rates are so low that there are few opportunities for banks to profitably invest the deposits of large corporate clients. What's more, growing capital requirements have many banks attempting to reduce their balance sheets, rather than grow them through larger deposits.

So where is the money going? I've spoken to smaller, regional banks who tell me they're seeing an influx of cash because "the big boys aren't playing." Japanese banks and Canadian banks are also seeing an influx of deposits, my sources say.

It is indeed a bank run in reverse, as I explained Thursday. Depositors are running to banks with so much cash that banks are trying their best to turn them away.

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