How Are the Large Banks Deploying All of Their Excess Liquidity?
Deposits have flooded into the banking system this year as the coronavirus pandemic has resulted in a wave of stimulus initiatives, increased the personal savings rate, and pushed money out of the markets, all of which has found its way into bank accounts. This has created a lot of excess liquidity at banks, but few opportunities to deploy the excess liquidity. Banks are now trying to determine the best strategy forward, and are taking different paths.
Banks make a good amount of their money by gathering deposits and lending them out at a higher rate than what they paid for them, a source of income known as net interest income. When banks are funding loans with cheap deposits, that's a good thing. But right now, while the deposits have flooded into the banking system, the pandemic has curtailed the demand for loans. This is particularly true on the commercial side, which typically offers the largest interest payments on loans.
Image source: JPMorgan Chase.
Source Fool.com
