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Bernanke's Legacy: A Record $1.3 Trillion In Excess Deposits Over Loans At The "Big 4" Banks

Tyler Durden's picture


The history books on Bernanke's legacy have not even been started, and while the euphoria over the Fed's balance sheet expansion to a ridiculous $4 trillion or about 25% of the US GDP has been well-telegraphed and manifests itself in a record high stock market and a matching record disparity between the haves and the have nots, there is never such a thing as a free lunch... or else the Fed should be crucified for not monetizing all debt since its inception over 100 years ago - just think of all the foregone "wealth effect." Sarcasm aside, one thing that can be quantified and that few are talking about is the unprecedented, and record, amount of "deposits" held at US commercial banks over loans.

Naturally, these are not deposits in the conventional sense, but merely the balance sheet liability manifestation of the Fed's excess reserves parked at banks. And as our readers know well by now (here and here) it is these "excess deposits" that the Banks have used to run up risk in various permutations, most notably as the JPM CIO demonstrated, by attempting to corner various markets and other still unknown pathways, using the Fed's excess liquidity as a source of initial and maintenance margin on synthetic positions.

So how does the record mismatch between deposits and loans look like? Well, for the Big 4 US banks, JPM, Wells, BofA and Citi it looks as follows.

What the above chart simply shows is the breakdown in the Excess Deposit over Loan series, which is shown in the chart below, which tracks the historical change in commercial bank loans and deposits. What is immediately obvious is that while loans and deposits moved hand in hand for most of history, starting with the collapse of Lehman loan creation has been virtually non-existent (total loans are now at levels seen at the time of Lehman's collapse) while deposits have risen to just about $10 trillion. It is here that the Fed's excess reserves have gone - the delta between the two is almost precisely the total amount of reserves injected by the Fed since the Lehman crisis.

As for the location of the remainder of the Fed-created excess reserves? Why it is held by none other than foreign banks operating in the US.

So what does all of this mean? In a nutshell, with the Fed now tapering QE and deposit formation slowing, banks will have no choice but to issue loans to offset the lack of outside money injection by the Fed. In other words, while bank "deposits" have already experienced the benefit of "future inflation", and have manifested it in the stock market, it is now the turn of the matching asset to catch up. Which also means that while "deposit" growth (i.e., parked reserves) in the future will slow to a trickle, banks will have no choice but to flood the country with $2.5 trillion in loans, or a third of the currently outstanding loans, just to catch up to the head start provided by the Fed!

It is this loan creation that will jump start inside money and the flow through to the economy, resulting in the long-overdue growth. It is also this loan creation that means banks will no longer speculate as prop traders with the excess liquidity but go back to their roots as lenders. Most importantly, once banks launch this wholesale lending effort, it is then and only then that the true pernicious inflation from what the Fed has done in the past 5 years will finally rear its ugly head.

Finally, it is then that Bernanke's legendary statement that he can "contain inflation in 15 minutes" will truly be tested. Which perhaps explains why he can't wait to be as far away from the Marriner Eccles building as possible when the long-overdue reaction to his actions finally hits. Which is smart: now it is all Yellen responsibility.

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Thu, 01/16/2014 - 13:45 | 4338278 nope-1004
nope-1004's picture



"QE helped mainstreet."

-Bernocchio, Jan 16, 2014


Thu, 01/16/2014 - 13:46 | 4338284 XAU XAG
Thu, 01/16/2014 - 13:57 | 4338320 MillionDollarBonus_
MillionDollarBonus_'s picture

I'm going to way in heavy here. Not only is this article misleading but it appeals to some of the most common fallacies about monetary policy. First of all, easy monetary policy does NOT benefit the banks. The primary dealers don't just get to spend the money they receive from the reserve bank, they have to make loans and generate revenue like other company.
Secondly, there has never been a chairman with a track record as flawless as Bernanke's. Under Bernanke our economy recovered from one of the sharpest recessions in history. We now have a booming stock market and a recovering housing market. Only a true maestro is capable of such a phenomenal feat. Please get an education and stop posting these ridiculous articles.

Thu, 01/16/2014 - 14:11 | 4338363 eclectic syncretist
eclectic syncretist's picture

MillionDollarBonus_, you are so awesome they made a movie about you with John Cleese playing you, and Kevin Klien giving you all the respect you so clearly deserve.


Thu, 01/16/2014 - 14:27 | 4338412 Richard Chesler
Richard Chesler's picture

Bankster Bonus Motherfuckers!


Thu, 01/16/2014 - 15:06 | 4338517 Mark Carney
Mark Carney's picture

In a nutshell, with the Fed now tapering QE and deposit formation slowing, banks will have no choice but to issue loans to offset the lack of outside money injection by the Fed. 


Why do they have No Choice, what happends if they just let it be?

Thu, 01/16/2014 - 18:01 | 4339029 Greenskeeper_Carl
Greenskeeper_Carl's picture

They have no choice because our monetary system requires the constant creation of more debt I order to survive. It's a byproduct of what happens when your currency is debt based. More money than presently exists is required to finance all of this, so more currency must be created(at interest) or it all comes crashing down. Not that it won't eventually anyway, but no doing what the article says will speed things up

Thu, 01/16/2014 - 14:12 | 4338368 geotrader
geotrader's picture

You sound like Steve Liesman.

Thu, 01/16/2014 - 14:17 | 4338384 King_Julian
King_Julian's picture

You mean weigh in? Or way in, as in balls deep? Education, my friend, is a terrible thing to waste.

Thu, 01/16/2014 - 14:19 | 4338387 maskone909
maskone909's picture

The primary dealers don't just get to spend the money they receive from the reserve bank, they have to make loans and generate revenue like other company.

what does an investment bank do, other than loan money?


  • dealing in non-governmental securities for customers
  • investing in non-investment grade securities for themselves
  • underwriting or distributing non-governmental securities
  • affiliating (or sharing employees) with companies involved in such activities
Thu, 01/16/2014 - 14:21 | 4338393 LMAOLORI
LMAOLORI's picture




It's funny that people still don't realize your sarcastic comments are just that lol - love it keep them coming!



Thu, 01/16/2014 - 14:25 | 4338406 moneybots
moneybots's picture

"Under Bernanke our economy recovered from one of the sharpest recessions in history. We now have a booming stock market and a recovering housing market."


Massive financial fraud can create an amazing illusion.


Greenspan was once called The Maestro.  Then the truth came out.  The truth will come for Bernanke as well.

Thu, 01/16/2014 - 14:35 | 4338435 slightlyskeptical
slightlyskeptical's picture

You may be correct MDB, if you judge the economy from the top down. If you judge it from the bottom up it has been a complete failure. All depends if you are speaking to the people in the room or the people as a whole. The sheep thinks that when the Bernanke says "you" he is actually talking to people outside the room. Silly buggers.  

Thu, 01/16/2014 - 13:56 | 4338321 maskone909
maskone909's picture

japan has been at it longer than us, no?  what do their banks reserves look like?

Thu, 01/16/2014 - 15:49 | 4338650 Concentrated po...
Concentrated power has always been the enemy of liberty.'s picture


Thu, 01/16/2014 - 15:48 | 4338651 Concentrated po...
Concentrated power has always been the enemy of liberty.'s picture

Thu, 01/16/2014 - 13:57 | 4338326 Cpl Hicks
Cpl Hicks's picture

Ben is a great man. He saved the nation. He's a true prince who deserves our undying gratitude!

Thu, 01/16/2014 - 14:15 | 4338379 King_Julian
King_Julian's picture

See MDB above. You and MDB should blow each other. (Yes, I'm assuming you missed the /sarc tag but I'll play along!)

Thu, 01/16/2014 - 14:33 | 4338430 williambanzai7
williambanzai7's picture

Thu, 01/16/2014 - 14:54 | 4338484 thunderchief
thunderchief's picture

Correct me if I'm wrong, but isn't this money all sitting in these overinflated markets, and when they fall, how do you extract trillions without huge losses?

I don't think these banks are going to be in any mood to lend to broke Americans when they are losing cash in speculative trades. They will have to be forced to loan the money, and would probably prefer to end up bailed out or in before that.

Tue, 01/21/2014 - 14:20 | 4352175 Jannn
Thu, 01/16/2014 - 13:46 | 4338285 Stoploss
Stoploss's picture

I have my two dump trucks ready to go..

Thu, 01/16/2014 - 13:49 | 4338299 mayhem_korner
mayhem_korner's picture



...to fill with gold and silver, not green paper, right?

Thu, 01/16/2014 - 13:47 | 4338286 youngman
youngman's picture

at some point the spring will be unwound....and probably very fast...

Thu, 01/16/2014 - 13:54 | 4338315 Boris Alatovkrap
Boris Alatovkrap's picture

You are use metaphor of spring, but everyone is know at some point, spring is sprung. There is no unwind, there is not retrace of step, no "undo", only war.

Thu, 01/16/2014 - 13:48 | 4338287 CPL
CPL's picture

1.3 trillion by the magic of fractional reserve banking becomes...11.7 Trillion in credit in a system.  Because those are the rules of fractional reserve banking.  It goes into an account, and magically becomes more because that's just the way it's set up.


So it's not really 1.3 is it.  It's really 11.7 trillion in capital that increases the money supply by accident.

Thu, 01/16/2014 - 13:50 | 4338302 XAU XAG
XAU XAG's picture

CPL + 1000

I was going to give you + 10 but I fractionally reserved 10 to 1000

Thu, 01/16/2014 - 14:01 | 4338339 Herd Redirectio...
Herd Redirection Committee's picture

Depends how much they keep in reserves.  10%?  Yeah right.  5%?  Probably still generous, but closer to the truth.  So that could become $20T before all is said and done.

But where can all that money even possibly go?  NINJA loans for all? 

Cash for cronies?  Who then convert to hard assets?  Everything gets bid up even further, college educations, energy prices, housing, real estate in general, productive assets, even stocks and junk bonds?


Thu, 01/16/2014 - 14:07 | 4338349 XAU XAG
XAU XAG's picture

Basell 3 wants 8%................Europe wants 6%..............not sure how the USA stands on B3

Thu, 01/16/2014 - 14:23 | 4338396 King_Julian
King_Julian's picture

"Where can all that money possibly go?"

Those drones ain't gonna buy themselves. All that NSA shit is expensive too! Gas for Moochelle's jet. Boehner's tanning bed? Campaign slush funds? Endless possibilities...

Thu, 01/16/2014 - 14:38 | 4338446 Herd Redirectio...
Herd Redirection Committee's picture

I think government expenditure, 'defence budget', and cronies are the top 3 possibilities.

Thu, 01/16/2014 - 16:22 | 4338771 tvdog
tvdog's picture

But where can all that money even possibly go?  NINJA loans for all?

It's a booming economy full of great opportunities. I have some wonderful business ideas myself - all I need is the same interest-free billions that the Fed gave to Goldman Sachs.

Thu, 01/16/2014 - 13:48 | 4338293 mayhem_korner
mayhem_korner's picture

In a nutshell, with the Fed now tapering QE and deposit formation slowing, banks will have no choice but to issue loans to offset the lack of outside money injection by the Fed.


Announcement of a $10B/month "taper" and the banks are going to unleash $2.5T of liquidity onto the market?  Wishful thinking.  That would be a death knell for the banks' solvency.

Thu, 01/16/2014 - 13:49 | 4338295 CEOoftheSOFA
CEOoftheSOFA's picture

I don't see loan demand improving, so the banks may have trouble shoving the money into the economy.

Thu, 01/16/2014 - 13:57 | 4338322 alangreedspank
alangreedspank's picture

Outstanding credit still growing. And growing. But higher rates will allow them to price risk better.

Thu, 01/16/2014 - 13:50 | 4338296 starman
starman's picture

can I have some excess deposits in my account, please ?

Thu, 01/16/2014 - 13:50 | 4338298 resurger
resurger's picture



Thu, 01/16/2014 - 13:51 | 4338305 ebworthen
ebworthen's picture

Well what do you know, FED juicing the TBTF banks that Hank Paulson said we had to bail out.

Fucking criminals.

Thu, 01/16/2014 - 13:57 | 4338324 Kaiser Sousa
Kaiser Sousa's picture


Thu, 01/16/2014 - 14:16 | 4338382 eclectic syncretist
eclectic syncretist's picture

If you want blood, you've got it!


Thu, 01/16/2014 - 14:06 | 4338329 CerpherJoe
CerpherJoe's picture

This really nails it. However i guess I don't understand why the banks would be motivated to increase loans based on no there being no more new deposits. How would they be in any different a situation then they were in, say, Dec. 2012?

It's still 'pushing on a string'.

Thu, 01/16/2014 - 14:07 | 4338357 TrumpXVI
TrumpXVI's picture

"banks will have no choice but to issue loans to offset the lack of outside money injection by the Fed."

That's what the article says.

So maybe this explains the brand new Comcast skyscraper breaking ground in center city Phila. this spring.  A massive tens of millions of dollars loan to a company in an industry that has been losing something like nearly one million subscribers per year for the past four years.  Time for Comcast to become one of Phila.'s biggest landlords?

Thu, 01/16/2014 - 14:42 | 4338457 Herd Redirectio...
Herd Redirection Committee's picture

Shrinking middle class.

Growing amounts of poor.

Divest out of the cable TV business, and invest in commercial real estate and slum housing?  Was that the conclusion they arrived at?

Thu, 01/16/2014 - 14:32 | 4338425 eclectic syncretist
eclectic syncretist's picture

Fed taper schedule based on $10B per meeting

$85,000,000,000 in December 2013

$75,000,000,000 in January 2014

$65,000,000,000 in February and March 2014

$55,000,000,000 in Arpri and May 2014

$45,000,000,000 in June 2014

$35,000,000,000 in July and August 2014

$25,000,000,000 in September 2014

$15,000,000,000 in October and November 2014

$5,000,000,000 in December 2014

$0 in January 2015


Of course, they could decide not to taper, hold rates down to essentially zero for another five years, and kill all pensions, insurance companies, and other bond yield dependent entities, but where would that get them?  They have to taper, and they have to let rates rise.  They can always blame Congress for the resultant problems then.

Thu, 01/16/2014 - 14:45 | 4338464 Herd Redirectio...
Herd Redirection Committee's picture

Even then, they haven't even STARTED unwinding!  This is just slowing the rate of purchases, which is still a different beast from selling what you bought/overpaid for.

But since its the flow that is the mattering thing, we could well see fireworks long before any hypothetical unwind...

Thu, 01/16/2014 - 14:56 | 4338489 Kirk2NCC1701
Kirk2NCC1701's picture

No shit-show goes on forever.  Every "dump" has its "taper".

Thu, 01/16/2014 - 16:24 | 4338779 theprofromdover
theprofromdover's picture

Fed taper schedule:

Don't be surprised to find there is a second column which says 'injections by other means' which is double the value of the taper each month.

Thu, 01/16/2014 - 16:26 | 4338781 tvdog
tvdog's picture

Then Congress has until 2015 to balance the budget, since nobody's buying U.S. bonds but the Fed.

Thu, 01/16/2014 - 22:42 | 4339884 StychoKiller
Thu, 01/16/2014 - 13:59 | 4338330 American Dreams
American Dreams's picture

Bernak will go down as the greatest fed chair in history.  He has done more to enrich his shareholders than any that came before him.

know your enemy


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