Felix Salmon

America’s soaring deposit base

By Felix Salmon
August 20, 2009

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)

10 comments so far | RSS Comments RSS

So the big banks have to lease or buy more buildings, hire more staff, and buy more computers, just people are saving more? Unless more accounts are being opened, as opposed to people putting more money in their existing accounts, the WSJ analysis doesn’t make any sense. Not that they normally do.

The next thing he’s going to say is that lowering tax rates will increase tax revenues.

Posted by KenG | Report as abusive

Felix, even if people are saving more, banks are NOT lending that money out. Hence the well-documented rise in bank reserves.

You should re-institute the Ben Stein watch, Felix.. but with a new label: Wall Street Journal watch.

You’d have a lot of work to do, and you could team up with Dean who runs herd on the Washington Post.

Posted by Unsympathetic | Report as abusive

I suspect that it would be fairly easy for the banking sector to squander $500 billion. For one they could start buying each other again.


On the one hand, if the costs are fixed, then you should definitely make more money by doing more business.

On the other hand, if these deposits are physical money, such as coins, gold, and bills, then you will need a bigger space and more workers to store it and move it around I suppose. Of course, when you have less deposits, you’ll have a lot of extra space. Maybe you could rent it out then. Is this how banks store money? I’ve no idea.

Maybe I’m just misunderstanding the point, and it depends upon how one understands the use of “big” and “hefty”.


The only people who save and then invest are those with taxable investment accounts, a small minority. Most individual investors have 401(k)’s, through which they save and invest (almost) simultaneously. Either they invest in the market through these tax-deferred vehicles (or through a Roth IRA), or they don’t invest at all. Most people view their deposits as rainy day money, or as the “conservative” portion of their portfolio.

Posted by Mike | Report as abusive

Pretty shocking misunderstanding of Econ101.

Posted by scott | Report as abusive

If a bank lends money at 7% but 12% of loans default, do they still make money? You’re still operating in a 1995 mindset of zero default rates and profits without risk for bankers. It’s a very different world now. Loans can go sour in a few months now.

Posted by GaryD | Report as abusive

The interest on credit card balances seems to range from a low of 9% to 27%, with the high range dominating. And of course the default on new credit cards balances is rather low given the new, tighter, underwriting standards.

Posted by Rick Kane | Report as abusive

Don, to answer your question of how banks store money: Depending on the branch location, it will ship its excess money out daily or weekly to a main branch. The main branches ship extra money to the Fed weekly. There’s no need to build extra storage for the extra money, which probably only accounts for a few cubic feet of actual bills per branch anyway.

I don’t see how increased deposits lead to increased fixed costs of building/staff maintanence. Even if some of these people were opening new accounts, that’s still not much extra work for an individual branch, and certainly wouldn’t require hiring a new teller.






Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/