Banks in the US received over two trillion dollars into deposit accounts as a surge of activity hit when the coronavirus pandemic slammed the nation in January. There’s never been anything like it in history. This level of deposit activity is unprecedented.
By June, banks across the country held more than fifteen trillion dollars in their accounts.
The record inflow of funds hit its peak at over 800 billion dollars in April and it surpassed the record holdings in new deposits for an entire previous year.
The influx of deposits slowed down a bit in May when US banks saw totals deposits of about six hundred billion dollars.
The sudden uptick of deposits made to accounts first began showing up in March when the lockdown was first enforced . Top companies like Ford also took out billions from their different lines of credits during the same month in order to successfully make it through the period.
Much later, banks began to see an inflow of money due to other programs created by the government. Some of the funds from the program designed to protect citizens’ paychecks initially arrived in banks later in the year.
Part of the influx was due in large measure to retail consumers cutting spending as the orders to remain home were enforced, and consumer spending habits reacted accordingly.
Increases in unemployment benefits were also a factor as stimulus funds aimed at relief for the COVID—19 pandemic were deposited.
Cash positions were suddenly in favor as many investors were worried about the safety of various investment products.
This led to businesses taking out their funds from investments they found risky and instead, pushed all the funds into their deposit accounts.
This shift in thinking led to the nation’s biggest banks to experience enormous growth during the first quarter of 2020.
Before the pandemic and the recession, banks were actively seeking deposits by offering potential clients higher interests and incentives.
This influx of deposits has led to a precipitous drop in interest rates and the many government programs and loans has resulted in significant reductions in lending and banks are finding profits hard to come by.
Only a small percentage of the money has been used to fund new loans
Although there has been a steady rise in loan collection activity in recent months, the high record of deposits is still holding back efforts put in motion to help the economy recover and make a full comeback.
But it’s largely a matter of time as banks are counting on the fact that, as the economy makes a comeback, the flood of deposits will begin to yield profits.
What’s the Takeaway?
Most banks have turned to finding securities with very low risk and are investing deposits in those instruments.