Big banks are now fighting for new customer deposits as more and more Americans continue to take their money out.
One way of competing with online-only banks has been by taking on ‘brokered deposits’, funds from third-party brokers such as Morgan Stanley or Fidelity, which come from customers willing to invest in the bank for higher returns.
“Many industry players view brokered deposits as a double-edged sword. They can be a quick and easy way for a bank to shore up its balance sheet.
The deposits are typically much more expensive because banks have to pay higher interest rates to lure in those customers, along with other fees.
Regulators and bankers say they are also a type of “hot” money that is prone to disappear when a bank hits a rough patch, since these yield-seeking customers don’t tend to be loyal,” says WSJ.
“Lots of banks are loading up on them—a sign of the distress that continues to afflict many lenders who now must compete for customer funds they long took for granted.”
Brokered deposits nearly doubled at Citizens Financial and Ally Financial in the second quarter, compared to last year’s numbers.
WSJ reports that they were up even more sharply at M&T Bank, KeyCorp and Comerica.
Bank of America, Wells Fargo and other big banks we also mentioned to lean on the more this year.
Could this be why big banks are giving customers so much trouble with liquidity?
New stats from the Federal Reserve Economic Data (FRED) system show that $48.81 billion in deposits exited American bank accounts from August 10th through the 16th.
In early August, it was reported that 25 of the largest US banks saw a record plunge of $174 billion in deposits, per FRED data.
Other Bank News Today
JPMorgan and others will pay a whopping $490,000,000 in new fines according to the latest court documents and updates.
JPMorgan, Goldman Sachs, UBS and Morgan Stanley have agreed to collectively pay $499 million to end the suit, which was filed in 2017 by US pension funds, led by the Iowa Public Employees’ Retirement System.
“The pension funds accuse the banks of trying to corner the market with their own system called EquiLend, while hindering the development of new platforms that would execute the borrowing and lending of electronic securities,” reports DH.
EquiLend was set up in 2001 by Barclays Global Investors, Bear Stearns, Goldman Sachs, JPMorganChase, Lehman Brothers, Merrill Lynch, Morgan Stanley, Northern Trust, State Street, and UBS Warburg, but is now owned by Bank of America.
Credit Suisse already paid an $81 million fine to settle its end of the lawsuit, and Bank of America is now the last remaining defendant who has not settled.
None of the banks have issued a statement on the case, and EquiLend has denied any wrongdoing, with representatives stating it reached a settlement in order to maintain day-to-day business operations for its clients, reports Financial Times.
“While Defendants have denied any wrongdoing and that any reforms were necessary, Plaintiffs believe that the equitable relief they designed and negotiated for will help align EquiLend to the best practices and guidelines for anti-cartel and collaborations among competitors.
Plaintiffs believe the reforms should materially decrease the likelihood of future collusion in the stock lending market, and thus Plaintiffs believe the reforms thereby increase the chances the industry would transition to a more competitive trading environment,” said court documents.
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