America’s soaring deposit base

By Felix Salmon
August 20, 2009
US deposits are rising fast too. Yes, a lot of people probably intend to invest their savings in the market, but you have to save the money first, before you can invest it. And with the market looking a bit rich these days, certainly by the standards of a few months ago, a lot of people, quite sensibly, don't feel that they want to risk losing any of their hard-earned money anyway. So:


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With the savings rate skyrocketing, US deposits are rising fast too. Yes, a lot of people probably intend to invest their savings in the market, but you have to save the money first, before you can invest it. And with the market looking a bit rich these days, certainly by the standards of a few months ago, a lot of people, quite sensibly, don’t feel that they want to risk losing any of their hard-earned money anyway. So:

Domestic U.S. deposits grew nearly $500 billion to a record $7.5 trillion during the year ended in March, according to the Federal Deposit Insurance Corp. And they appear to have kept growing since.

I’m confused about where the WSJ journalist, Marshall Eckblad, goes from there, however:

Overflowing deposits don’t necessarily lead to big profits, since big banks have to cover hefty fixed costs for buildings, computers and layers of full-time staff.

This makes very little sense. Deposits, to a first order of approximation, are free money. The more free money they have to lend out, the more profits they make. And $7.5 trillion, lent out at an average of say 7%, throws off more than $500 billion per year. It’s hard to spend that kind of money on buildings and computers.

(Via Moore)

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