In a remarkable turn of events, a staggering $46.95 billion has poured into the US banking system within a mere week. This influx can be attributed to the implementation of novel strategies by banks aiming to win back customers who had been withdrawing their deposits.
According to the latest data compiled by the Federal Reserve Economic Data (FRED) system, depositors added an exact sum of $46.95 billion to American bank accounts, marking a significant boost in the week ending June 21st.
Reports from Bloomberg reveal that the exponential growth in deposits can be attributed to the adoption of innovative tactics to counter the alarming trend of deposit flight. Regional banks, in particular, have resorted to borrowing substantial amounts of cash from the Federal Reserve. Additionally, they have turned to little-known intermediaries, who compile brokered deposits, to bolster their financial standing.
However, while these strategies may be effectively increasing deposits, they come at a substantial cost in the long run. An analysis of quarterly regulatory filings for the top 84 banks indicates that the rising costs associated with these tactics are beginning to impact their earnings significantly. In fact, some banks find themselves in a precarious position, where they are paying more to accumulate necessary cash than they are earning through lending activities.
Notably, the surge in brokered deposits has been most evident in PacWest Bancorp, headquartered in Los Angeles, which experienced an astounding 1,774% increase in quarterly brokered deposits compared to the previous year. Despite their ability to boost deposits, brokered deposits often referred to as “hot money,” do not tend to remain in bank accounts for extended periods, unlike organically acquired deposits.
The current total amount of deposits in US banks stands at an impressive $17.34 trillion. Although this figure reflects an increase over the past week, it remains notably lower compared to the $18.10 trillion recorded a year ago. This discrepancy emphasizes the challenging task faced by banks in regaining the confidence and trust of depositors.
The injection of nearly $47 billion into the US banking system within a single week showcases the remarkable efforts made by banks to reverse the trend of deposit flight. However, the costly nature of these strategies and the potential risks associated with brokered deposits warrant careful consideration for banks as they seek to strike a delicate balance between attracting deposits and ensuring sustainable profitability.
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