Will Digital Payments Replace Cash In The U.S?
Record inflows of $ 2 trillion in cash flowed into US bank deposits since the coronavirus hit the US, according to the FDIC (Federal Deposit Insurance Corporation).
The flow of money to banks is unprecedented in history. In April alone, deposits grew by $ 865 billion, which is more than the indicators for the entire last year..
This is due to the response to the threat of a pandemic. The government has allocated hundreds of billions of dollars to support small businesses and individuals through stimulus measures and unemployment benefits. The Federal Reserve has also made a number of efforts to support financial markets, including an unlimited bond buying program..
According to the FDIC, the bulk of the profits went to the 25 largest credit institutions in the country. Assets Jp morgan chase, Bank of america and Citigroup grew much more than other market participants in the first quarter.
«This growth is absolutely extraordinary. Banks are unhappy with this amount of cash. They are like Scrooge mcduck, literally bathe in money», – said Brian foran, Analyst at Autonomous Research.
There are several reasons why the US large banks that survived the 2008 crisis became the main beneficiaries of deposits.. When states began announcing economic closures in March, corporations including Boeing and Ford immediately attracted tens of billions of dollars within credit lines.
Large banks also served most of their clients within the framework of payroll protection program for which the government allocated $ 660 billion.
Large banks have a huge number of retail clients. The level of personal savings of the population has reached record 33% in April, the U.S. Bureau of Economic Analysis reported last month. Personal income actually grew by 10.5%, thanks to one-time payments and unemployment benefits, which in some cases to more than the employee’s usual income.
All this money was flowing into bank accounts. CEO of Bank of America Brian moynihan told CNBC last month that checking accounts were below $ 5,000 was up to 40% more funds than before the pandemic.
The largest banks, with their extensive branch networks along the coast, relied on multiple deposits as a key advantage in the post-financial crisis.. They are one of the cheapest sources of credit financing, helping the industry to generate record profits even during times of low interest rates..
However, banks that stick to cautious lending in the midst of a recession run the risk of running out of opportunities to use the growing supply of cash, experts say..
If the deposit boom is just one of the consequences of government actions taken to mitigate the financial damage from the pandemic, then the United States has yet to feel the serious consequences of the historical increase in US government spending.. Some experts predict collapse of the dollar combined with higher inflation. Others think another bubble is brewing in the stock market.
«Banks are likely to lower their already paltry interest rates as they no longer need your money.», – believes Brian Foran.