The "Big Three" Banks Are Gambling With $860 Billion In Deposits

Tyler Durden's picture

A week ago, when Wells Fargo unleashed the so far quite disappointing earnings season for commercial banks (connected hedge funds like Goldman Sachs excluded) we reported that the bank's deposits had risen to a record $176 billion over loans on its books. Today we conduct the same analysis for the other big two commercial banks: Wells Fargo and JPMorgan (we ignore Citi as it is still a partially nationalized disaster). The results are presented below, together with a rather stunning observation.

First, Wells again - deposits over loans: record $176 billion.

Next: Bank of America: unlike Wells, BofA is not even trying as its deposits are soaring while the loans have been declining for 6 quarters in a row. Deposits over Loans: record $221 billion.

Finally: JP Morgan, or the bank that started it all when the CIO blew up and made it all too clear what happens with the "Excess deposit over loans" cash. December 31 Deposits over Loans: record $460 billion.

And this is how the consolidated deposit and loan data for the Big Three banks looks: some $858 billion, or nearly half of the $2 trillion in total excess deposits over loans in the entire US commercial banking system (speaking of Too Big To Fail).

Why is all of the above important?  Because as we have explained repeatedly in the past several weeks, the "excess deposit cash over loans" is nothing more or less than additional prop trading capital, that banks can use as they see fit. The traditional regulatory explanation is that the cash is to be used for safe, responsible investment. Alas, as the JPM CIO debacle taught us, said cash is used for anything but, and is in fact used to fund prop trading operations deep inside these commercial banks.

But don't take our word for it. Take the word of the Task Force charged with explaining away the 2012 CIO Losses, released yesterday.

JPMorgan’s businesses take in more in deposits than they make in loans and, as a result, the Firm has excess cash that must be invested to meet future liquidity needs and provide a reasonable return. The primary responsibility of CIO, working with JPMorgan’s Treasury, is to manage this excess cash. CIO is part of the Corporate sector at JPMorgan and, as of December 31, 2011, it had 428 employees, consisting of 140 traders and 288 middle and back office employees. Ms. Drew ran CIO from 2005 until May 2012 and had significant experience in CIO’s core functions.19 Until the end of her tenure, she was viewed by senior Firm management as a highly skilled manager and executive with a strong and detailed command of her business, and someone in whom they had a great deal of confidence.


CIO invests the bulk of JPMorgan’s excess cash in high credit quality, fixed-income securities, such as municipal bonds, whole loans, and asset-backed securities, mortgage-backed securities, corporate securities, sovereign securities, and collateralized loan obligations. The bulk of these assets are accounted for on an available-for-sale basis (“AFS”), although CIO also holds certain other assets that are accounted for on a mark-to-market basis.


Beginning in 2007, CIO launched the Synthetic Credit Portfolio, which was generally intended to protect the Firm against adverse credit scenarios. The Firm, like other lenders, is structurally “long” credit, including in its AFS portfolio, which means that the Firm tends to perform well when credit markets perform well and to suffer a decline in performance during a credit downturn. Through the Synthetic Credit Portfolio, CIO generally sought to establish positions that would generate revenue during adverse credit scenarios (e.g., widening of credit spreads and corporate defaults) – in short, to  provide protection against structural risks inherent in the Firm’s and CIO’s long credit profile.


The positions in the Synthetic Credit Portfolio consisted of standardized indices (and related tranches) based on baskets of credit default swaps (“CDS”) tied to corporate debt issuers. CIO bought, among other things, credit protection on these instruments, which means that it would be entitled to payment from its counterparties whenever any company in the basket defaulted on certain payment obligations, filed for bankruptcy, or in some instances restructured its debt. In exchange for the right to receive these payments, CIO would make regular payments to its counterparties, similar to premiums on insurance policies. As described in greater detail below, the actual trading strategies employed by CIO did not involve exclusively buying protection or always maintaining a net credit short position (under CSW 10%); rather, CIO traded in an array of these products, with long and short positions in different instruments.

In other words, JPM's own task force admitted the CIO was using excess cash for prop trading purposes (there is much more in the full 132 page document). This is when JPM had roughly $400 billion in excess cash over loans. JPM now has a record $460 billion and it most likely continues to invest this cash in any way it sees fit. Sadly, when asked to provide details about what the CIO is doing these days, Jamie Dimon provided no additional information.

Because if JPM was/is doing it, everyone else was/is doing it.

And you, dear savers, are the ones who money is being used by the banks to fund precisely this prop trading, which, among other factors (Fed) is what is causing the relentless stock market melt up.

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kliguy38's picture

NO they're not........THEY are the HOUSE..........thats not gamblin

koder's picture

Gambling is for suckers....this is a stacked deck. They know what they are doing.....just enjoy the ride ;0

NotApplicable's picture

I think it's funny that a "bank" would feel the need to state that 'The Firm, like other lenders, is structurally "long" credit.'

Now, just how far does one have to stray from their alleged core business to feel the need to make that statement? LOL

The Monkey's picture

Now, you would expect the Fed to be concerned about risk.  But, we already know their track record.

I don't think they will be able to explain it this time.  Headline is like: Players bid each others books up in an illiquid market, sold what they could to retail, hedged, and then fucked everybody.

Boris Alatovkrap's picture

Bank is gamble with Boris' money and wife is spend whatever can be left!

akak's picture

Boris is gamble with money, and Russian wife is greet him with left hook!

boogerbently's picture

Free interest on govt. money, or laughable interest for 30 years????????Gee??????

Boris Alatovkrap's picture

No, wife is lose right hand in factory accident, not left.

centerline's picture

You guys should at least use /sarc.  They are gambling with your money - period.  It is just that simple.

Stuck on Zero's picture

I am reall appalled I was under the impression that the Bak would pak thos excess fund in ultra-safe Treasuries. /sarc


IamtheREALmario's picture

Yes, and a crooked house at that. They get to choose their cards after seeing the cards of the gamblers.

Cursive's picture


I doubt Jamie Dimon carries as much weight with the GIIPS as he does with the UST.  Granted, he may only need to dial-up another branch of the international banking brotherhood to make right on his peripherial European debt gamble, but there is the possibility for some of his clout to be "lost in translation."

ultimate warrior's picture

Private profits socialized losses.

EscapingProgress's picture

= Fascism

"State intervention in economic production arises only when private initiative is lacking or insufficient, or when the political interests of the State are involved. This intervention may take the form of control, assistance or direct management." - Benito Mussolini, 1935, Fascism: Doctrine and Institutions, Rome: 'Ardita' Publishers, pg 136

LongSoupLine's picture

and lest we fool ourselves into thinking these assholes don't have it leveraged 1000X with derivatives and black pool ass fucking.


Fuck you primary dealers.

Yen Cross's picture

Where is EKM?  It's days like this ,that make me go full on " Mad Man".  /sarc/ I'm too old for that shit ;-)

 EKM and L/S/L would have a heyday with this topic!

fonzannoon's picture

I think this info sent ekm back to the drawing board. Although it lends some credibility that the fed and the banks are going to end up owning the whole market....and then.....

Groundhog Day's picture

So your sayin JP Morgan is the chip leader?  Who's holdin the pocket aces and who's bluffing?

IamtheREALmario's picture

Bank deposit = unsecured loan THEREFORE Unsecured loan = bank deposit

So, unless I am missing something with banking 101. ANY unsecure loan to a bank could and probably is considered a deposit. So, the Fed loans to the banks are deposits.... lol.

secret_sam's picture

<in bad Russian accent>: In capitalist USA: a bank deposit is loan that bank owes YOU.

Bunga Bunga's picture

What, I don't get collateral when I loan money to the bank?

joego1's picture

My next house is going to have a discount window so I can play too.

NotApplicable's picture

My last house was full of them. Made heating and cooling extremely expensive.

Mike2756's picture

Not if you have a printer.

Bunga Bunga's picture

Install only the printer friendly discount windows.

Banksters's picture

That is ok, the FDIC has about 2 billion to cover it.  lol

donsluck's picture

What we will be seeing is a slow movement into physical cash, and thence to physical PMs as citizens make rational decisions with their money. Against all the Feds' efforts, electronic money will not happen, cash will still be used and the whole system will have to be force fed through draconian PM and cash exchange laws.

the grateful unemployed's picture

remember the best financial advice in the 30's? bury your money in the backyard.

centerline's picture

funny how they can make it worthless and never touch it or see it in circulation.

Say What Again's picture

I have made it my mission in life to educate everyone in the neighborhood regarding the definition of; "rehypothecation."

We're at the bar and someone starts talking about the fooball playoffs -- and I say; "yes, but do you know that the TBTF banks have hypothicated you deposits?" 

The chicks really dig that shit!

francis_sawyer's picture

You must rarely wear underwear... [& when you do, it's something kinky, like a tiger print]...

nmewn's picture

Counterfeit money buying the reciepts of spent

centerline's picture

counterfeit money being used to pay for derivatives of spent capital plus interest on previously spent counterfeit money!  lol.

Water Is Wet's picture

But that huge increase in reserves is only inflation in the strictly literal sense.

the grateful unemployed's picture

this is what FDIC is for, why Goldman Sachs has, even though they have no retail business. if you take the consumer out of the equation - saver puts money in bank - FDIC insurances that money - JPM sweeps money to its prop trading desk, then you have the government stock market.

Yen Cross's picture

 Banks? Try this one.  The technical definition of banking : Oligopoly - Wikipedia, the free encyclopedia

Cursive's picture

@Yen Cross

And it's illegal to issue your own currency.  Hell, it's illegal to accept any currency for payment other than USD.  What does that tell anybody.  America is suppossedly the most innovative and greatest country of all time, but we're stuck with monopoly (literally!) money?  Oh, people laugh about Milton Bradley Monopoly money, but the Federal Reserve Note is the real monopoly money.

Yen Cross's picture

  Board Walk or park place?   Banks=slum lords!

  Free up the shadow inventory {BAC,C,WFC} You worthless scum, bags!

francis_sawyer's picture

 "Hell, it's illegal to accept any currency for payment other than USD. What does that tell anybody?"


Oh, I could tell you... But then you'd have to kill me...

Clint Liquor's picture

At this point in time, anyone who put money into these Banks deserves the anal rape they most surely will get.

Banksters's picture

I relish .00002 percent interest, don't you?

secret_sam's picture

You're supposed to put your dough in the bank, but duh.


The thing seems to me that we have a large aging population many of whom can't really think that way at this point.

Dr Benway's picture

But when the banksters blow the money, they will just be bailed out anyway. So neither the enabler-depositors nor the banksters will be the ones to pay.

The game is now such that there is no possible  comeuppance, no recourse, no hope for justice whatsoever.

Not one of the criminals will ever get what they deserve. And that's the most maddening part of it all.

falak pema's picture

PDs (TBTF oligarchy) and CBs hand in hand in money churning that allows assets levitation of WS and this leads to the Squid declaring a 7 billion profit W/O having a deposit bank! Just on sleight of hand and insider trading and BOT HFT derivative plays! 

How the Oligarchy controls the money churning all the while depriving the real entrepreneurs of loans to allow innovation...

We are in a monetary circle were the snake eats its own tail. 

falak pema's picture

GS declares over 7 billion AT profits in 2012...they have made a killing. or is it just numbers fixing?

Payne's picture

This makes sense with the FDIC data,  B of A and Chase have more 90 days late by far than any other bank on 1-4 Family units, they have increased by 3% in the past year.  They are making a choice to not liquidate and gamble the money in the stock market.

Coldfire's picture

I don't get it. With fractional reserve lending, you only need a fraction of the liabilities (such as deposits) on hand. At 10:1 leverage one dollar of deposits creates ten dollars of loans. If you could only create one dollar of assets (loans) for each dollar of deposits, where would the leverage be? What am I missing here? Of course there are other liabilities, such as debt, to create leverage, but shouldn't these also be part of the picture here or are we only talking about demand deposits, immediately due? Wouldn't the excess of deposits over loans need to be multiplied by the leverage factor at the bank to get the full amount of funds used for a banking institution's riverboat gambling activities?

Joe moneybags's picture

So now the banks volantarily reign in their fractional reserve lending, to less than 1.0, and Tyler carps.  Which is it, too much lending, or too little?

cranky-old-geezer's picture



It's all quite simple.  Banks are looting the wealth of America under the banner of QE.  Selling near-worthless "securities" to the Fed at full par value is how they do it. 

It has nothing to do with lending.  It's about LOOTING.

And I'm quite confident it's way more than $860 billion.  Probably 5 times that much.

You see, Tylers have this myopia problem.  They can't see past a balance sheet.

...and perhaps some "moron" mixed in.  They believe what's on that balance sheet.