US Banks As Broken As Ever: JPM Excess Deposits Rise To New Record; Loans At Pre-Lehman Levels

Tyler Durden's picture

The final item of note from today's JPM release is perhaps also the most important one, and once again serves as evidence of all that is broken with the US financial system. To wit: deposits held by JPM rose modestly to a new all time high of $1,202,950 million, or $1.2 trillion. This compares to $970 billion in Q3 2008 at the time Lehman failed. What about the flip side of this key bank liability: loans. As of June 30, 2013, total JPM loans declined from $729 billion to $726 billion, the lowest since September 2012. But more disturbing, this number is $35 billion less than the $761 billion at September 2008. It means that JPM's excess deposits have now risen to a new all time high of $477 billion, up from $474 billion last quarter.

Why is this a problem? Two reasons.

First, as most recall, the way the JPM London Whale office was funded, was by using excess deposits over loans to provide the dry powder and collateral which which Bruno Iksil's office tried to corner the IG9 and high yield markets.

That failed, costing the firm $3.4 billion in Q2 2012 revenue (and oddly enough the CIO generated negative $648 million in revenue this quarter: the biggest loss since the London Whale quarter - what else did JPM blow up this time?). But the bigger issue is: what is JPM investing all this excess cash in? Is it plain vanilla safe treasuries? If so, where on the firm's books is this nearly $500 billion "investment" accounted for, and where is the loss associated with holding so much duration on the bank's balance sheet over the past two months?

Second, and just as important, while JPM continues to attract deposits, most of which are merely a matched book entry to account for cash created by the Fed's excess reserves, where is the loan growth? After all the banks are complaining they can't be like normal banks. Perhaps instead of perpetuating a broken banking model, in which deposit funding is used not to grow credit money and be reinvested into the economy as loans, but goes automatically into risk assets, JPM can once again start doing what banks have done for hundreds of years: LEND.

Because while deposits have increased by $233 billion since Lehman, loans have dropped by $36 billion since September 2008! And that's why there is no wholesale (soaring) inflation: the cash deposits are locked into boosting the S&P, instead of growing the economy and broader credit money aggregates.

We understand that JPM generates better returns for its shareholders by simply gambling in the market and using deposits to buy stocks, but at some point this strategy will fail and lead to huge losses. Is Jamie Dimon, who today told CNBC "you'll be surprised at how risk averse we are" simply betting that due to his TBTF status, that he will be bailed out once the market finally does crash, dragging down over a trillion in deposits with it?

Or is that simply when the bank "bail in" regime will finally arrive in the US?

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fonzannoon's picture

Crude about to bust through $110 and interest rates trending up.

This is fascinating

Spider's picture

Lets break the banks together!

A grass roots movement called The Silver Pledge is an effort to beat the banks at their own game by having investors join up and buy physical silver - together we can break this market!

You can read more here:

If you dont like it dont sign up - but for people who are sick of sitting and doing nothing at least lets work together to BREAK this silver market and thus break the banks stranglehold on fiat

thecoloredsky's picture

I'll give you one thing, you are really fucking persistant.

Divided States of America's picture

3:30 ramp TEN minutes behind schedule....but better late than never!

NotApplicable's picture

Silly Tyler, one does not lend in a ZIRP-world. One uses "reserves" to support their partners in crime.

Spider's picture

Hey we all work for something - I want to work for a new currency system

thecoloredsky's picture

So how many have signed up? Don't get me wrong, I like the concept, but the sign up form scares the shit out of me.

pavman's picture ...

Hint: turn off directory indexing.  Lots O' Interesting sites there.

kaiserhoff's picture

You don't understand JPM's business plan, Tyler.

It's like Vegas.  When you lose, you just double your bet, and role the dice again.  Sooner or later you'll win.

What could go wrong?

Stuart's picture

more like, scared is as scared does. 

CaptainSpaulding's picture

What can go wrong. Just call customer service. They will handle it

Non Passaran's picture

I made buying silver a habit, so I won't pledge but I support the idea. I bought some this week and in 3 weeks I'll do it again.

Spider's picture

Thats the concept - you dont need to sign on the list.  But this is a way to join together and by being together we can encourage each other.

Plus I give away free silver (out of pocket) every month - so it doesnt hurt

NOTW777's picture

remember, your pres told you this is a sign of a strong economy :)

NotApplicable's picture

How so? I don't have a pres.

Its Only Rock N Roll's picture

Fonz, you still think the Fed has control of things?

BB is pissed he can't get rates to go matter what he utters. 

But Jamie D. doesn't care about raising rates....JPM will just be fine.

fonzannoon's picture

I am agnostic on interest rates right now so I still think he has some control. If they push through 2.7% again I will be surprised. That being said I see them trending higher, but between mortgage related issues and crude oil, I think we are heading towards a terrible gdp print and moar QE.

Nothing makes sense.

It looks like china's gdp is going to be shit sandwich, but everyone knows that already and crude is still heading north. No one really knows why.



kaiserhoff's picture

Crude is heading north..., because we have a few trillion of momo money sloshing around?

It could easily be that simple, and that stupid.  Squeezing a balloon.

Its Only Rock N Roll's picture

All of Benji's huffing and puffing got the 10yr to 2.60%.  In today's highly leveraged world that is unacceptable.  They will push through 2.7% on their way to 3% soon. 

He lost control of the one market he wants to control the most.   

He will try to do something that will end up making it worse.

Things don't make sense when markets are manipulated like this.  Prices lie.  People are getting caught offsides.



fonzannoon's picture

I want to agree with that pretty badly. It makes a lot of sense.

Its Only Rock N Roll's picture

Toothpaste is out of the fucking tube...your words not mine

Believe it because it is true

fonzannoon's picture

I do think it is out of the tube. Fucking stawks have laughed in my face since I said it. I feel like I am half right and yet still half an asshole.

Tinky's picture

No, you're just not trying to time things perfectly like the true assholes.

kaiserhoff's picture

Good point.

Ben's been so lucky for so long, we tend to forget that, at the margin, no one wants reward free risk.

Eventually, you run out of stupid.

Kirk2NCC1701's picture

@fonzanon:  ... "nothing makes sense".

Agreed.  But what should one do when nothing appears to make sense?  Stick to time-proven basics.  Which ones?  Well, how about...

1.  "When things appear not to make sense, we are either lacking key information, or are using an inadequate or wrong  model." - my view

2.  "When fraud is rampant, possession is 10/10s of the law" is what LoP would say, I believe.

3.  When you cannot proceed on a robust model, reliable info or on trust, use 1 & 2 above, plus "diversify in asset classes & geography" - my view

"All else seems like Quantum Economics at this point", to coin a phrase.  Test the Uncertainty Principle at own peril.

ekm's picture

the gov can controls the paper market but at the cost of double killing the economy and dollar avoidance by the world


USD world currency status is at stake.

Something will be happening extremely soon, by executive order, not because of the market

fonzannoon's picture

ekm you think we are going to get a crash and you think interest rates have to go up right?

If we gate a major crash, you don't think treasuries won't be massively bid, sending yields....i don't know...sub 1%?

The only way you get a crash and yields rise is if the U.S dollar crashes and if it does that is the end of the end. That is massive inflation and you don't get cheaper housing or a breather for the economy.

How do you reconcile a crash and rising yields at the same time?

ekm's picture

USTs are purchased at 1.5% margin and 98.5% leverage.


When the margin call is made (executive order), leverage will suck money into ..literally nothing, hence forced sale.


However, the money moving hands will bid short term USTs since there's nowhere to go, so it will be volatile

ekm's picture

reposting copy/paste 


Seeing how 10yr yield collapsed from 2.52 to 2.60 in 2.5 hrs, the end is near, and all preplanned


1) The Fed has to buy bonds

2) Repo market needs the same bonds to be pledged as collateral



either yield skyrockets thus imploding derivatives and triggering margin calls, since UST are bought at 1.5% margin and 98.5% leverage


or. repo market ceases to function due to shortage of collateral, hence collateral calls.


Current reality:

- margin calls

- collateral calls

- crude oil super inflation

- extremely expensive Dow, S&P (overpriced by 100%)

- extremely expensive housing (overpriced by 100%)

- high unemployment

- China imploding due to politburo infighting


It cannot get any worse than this, unless civil war in USA.

Collapse imminent, not because of market, but because of executive order, same as in 2008.

The collapse will fix the debt ceiling issue, easy peasy.

fonzannoon's picture

"The collapse will fix the debt ceiling issue, easy peasy"

define fix? How is 17 trillion in debt going to get fixed?



Tinky's picture

"Debt ceiling", not extinguish the debt itself

fonzannoon's picture

This comes back to the same idea though. If some big banks go bust, are you going to bail them out again? Or let the depositors lose their ass. Because if you let depositors lose their ass, you get the mother of all bank runs and this morphs into something more.

Tinky's picture

No easy way out, for sure. That's what makes it possible to enjoy some schadenfreude before the event even occurs!

ekm's picture

I meant that there won't be a fight over it, due to the collapse

they'll agree somehow to extend it let's say for 1 year

Divided States of America's picture

thats what they been doing the past few years...its just kicking the can a bit further down the road...been there done that...

CaptainSpaulding's picture

Thanks for the warning. I wont be home that day. Robidoux suggested i head due west where the sun sets. Turn left at the Rocky mountains

Yen Cross's picture

   Hey fonz, ultimately in a collapse I think you get a huge spike in the $ and in bond prices initially. [Global safeheaven flows]. If it's a massive sustained crash then bonds and the $ cave in, and commodities skyrocket. Over the last month yields continued to rise and the $ continued to strengthen. Lot's of times investors sell bonds  just to  hold cash, which increases cash demand and value.

fonzannoon's picture

That is the only way I see a global crash playing out Yen, unless we are talking about the big one. The big big one, and I don't know that we are there yet.

ekm's picture

There's no such a thing like "the big one".

The big one would be another bretton woods after ww2.


It is going to simply be few primary dealers going dust

No biggie, it's catharsis, nothing to worry about.

It's good for the economy

fonzannoon's picture

See my point above. If a few pd's go bust, you gotta bail em out, all over again. If you don't, you risk a bank run. Even if you do, you risk a bank run.

and yes the big one is still out there, it's the day rates go the wrong way and everything the fed tries to do/say only exasperates it.

ekm's picture

no bank run on the street, the gov can can force that


bank run will happen in the repo market, same as in 2008

fonzannoon's picture

So you are sying capital controls?


That's no big deal, and good for the economy?

ekm's picture

No, what I'm saying is that the printed money claiming commodites will disappear, hence crude oil and commodities will be available to the real economy for consumption


hence, economy restarts

fonzannoon's picture

I have to run. If there is one thing I know for sure, it's that we will continue this conversation.

oddjob's picture

hence, the marginal cost commodity producer is gone. Hence higher prices.

ekm's picture

Costs are manipulated by false accounting.

Plus, price defines costs, not vice versa

PiratePawpaw's picture

I agree that reserve currency status is at stake,  but 2 questions/issues:

I dont believe a replacement is ready YET.

And I dont believe there is a thing the pres can do to stop it when it is.