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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 | Link to Comment nope-1004
nope-1004's picture

 

 

"QE helped mainstreet."

-Bernocchio, Jan 16, 2014

 

Thu, 01/16/2014 - 13:46 | Link to Comment XAU XAG
Thu, 01/16/2014 - 13:57 | Link to Comment 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 | Link to Comment 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.

http://www.youtube.com/watch?v=OBt-nirXQDE

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

Bankster Bonus Motherfuckers!

 

Thu, 01/16/2014 - 15:06 | Link to Comment 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 | Link to Comment 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 | Link to Comment geotrader
geotrader's picture

You sound like Steve Liesman.

Thu, 01/16/2014 - 14:17 | Link to Comment 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 | Link to Comment 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?

answer:

  • 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 | Link to Comment LMAOLORI
LMAOLORI's picture

 

 

MillionDollarBonus_

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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment Concentrated po...
Concentrated power has always been the enemy of liberty.'s picture

https://www.youtube.com/watch?v=KB5ljM3AJ2c

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

Thu, 01/16/2014 - 13:57 | Link to Comment 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 | Link to Comment 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 | Link to Comment williambanzai7
williambanzai7's picture

Thu, 01/16/2014 - 14:54 | Link to Comment 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 | Link to Comment Jannn
Thu, 01/16/2014 - 13:46 | Link to Comment Stoploss
Stoploss's picture

I have my two dump trucks ready to go..

Thu, 01/16/2014 - 13:49 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

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

Thu, 01/16/2014 - 13:47 | Link to Comment youngman
youngman's picture

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

Thu, 01/16/2014 - 13:54 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment starman
starman's picture

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

Thu, 01/16/2014 - 13:50 | Link to Comment resurger
resurger's picture

Fugaziiiiiiiiiiiii

 

Thu, 01/16/2014 - 13:51 | Link to Comment 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 | Link to Comment Kaiser Sousa
Kaiser Sousa's picture

DEATH TO ALL MONEYCHANGERS....

Thu, 01/16/2014 - 14:16 | Link to Comment eclectic syncretist
eclectic syncretist's picture

If you want blood, you've got it!

http://www.youtube.com/watch?v=6EWqTym2cQU

Thu, 01/16/2014 - 14:06 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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

http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm#20363

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 | Link to Comment 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 | Link to Comment Kirk2NCC1701
Kirk2NCC1701's picture

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

Thu, 01/16/2014 - 16:24 | Link to Comment 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 | Link to Comment 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 - 13:59 | Link to Comment 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

AD

Thu, 01/16/2014 - 14:19 | Link to Comment NIHILIST CIPHER
NIHILIST CIPHER's picture

The bernank served his satanic masters well, here's hoping humanity finds him and renders justice.

Thu, 01/16/2014 - 19:27 | Link to Comment Ballin D
Ballin D's picture

Fuck You bernanke!

Thu, 01/16/2014 - 13:59 | Link to Comment youngman
youngman's picture

only the 1% will be able to get that money....and it will go to buy things..that is what holds its value in an hyperinflationary time...factories..real estate..PMs..things that hold value..the rest of us will be running to the stores to buy food and drink before they double in price

 

Thu, 01/16/2014 - 14:00 | Link to Comment NetCentric
NetCentric's picture

Why is this suddenly news? Basic chart at the fed for years.

http://research.stlouisfed.org/fred2/series/EXCSRESNW?rid=283

 

Thu, 01/16/2014 - 14:01 | Link to Comment PlausibleDenial
PlausibleDenial's picture

A neophye here, can someone pls define "inside money" becuase I think I need some of it.  Thnx...

Thu, 01/16/2014 - 14:07 | Link to Comment chdwlch1
chdwlch1's picture

"Inside Money" is the 3 Gold Eagles I keep in my ass...

Thu, 01/16/2014 - 14:41 | Link to Comment Tyler Durden
Thu, 01/16/2014 - 15:01 | Link to Comment Kirk2NCC1701
Kirk2NCC1701's picture

TD, in that case... can you please define Crypto-Currencies (CCs) for us -- using their definition?  Thx.

E.g. I am able to interpret CCs as either Inside or Outside Money.

Thu, 01/16/2014 - 14:01 | Link to Comment insanelysane
insanelysane's picture

Some chucklehead on CNBS this morning said that the correlation between any and all Central Bank balance sheets and future inflation is a myth.  Santilli's heart rate jumped higher than the markets do when the Fed announces more QE.

Thu, 01/16/2014 - 14:05 | Link to Comment ebworthen
ebworthen's picture

And the same dope would probably opine that there is no correlation between QE and the equities ramp job.

And in the next breath, claim that structural unemployment and non-participation labor rate won't affect the consumer.

Thu, 01/16/2014 - 15:02 | Link to Comment Kirk2NCC1701
Kirk2NCC1701's picture

Ever heard of the expression "Figures lie and liars do a lot of figuring"?

Thu, 01/16/2014 - 14:14 | Link to Comment Inthemix96
Inthemix96's picture

I wouldnt mind being the owner, or a bunch of owners with a governmental charter to print money from thin air, and then charge interest on it.

How the fuck could you not make money then?  There is a company here called 'Wonga', a 'Pay-Day' loan specialist, who charges, get this, 5,900% interest, and its all legal and above board, for now.  Dont believe me?  Google it, its on the front page.

This is theft, this is usury extreme, this is indeed 'Indentured Servitude' and this is, very shortly, going to end.

The pendulum has swung, folk are more aware than ever in the history of mankind thanks to the internet.  2014 should be a very fucking interesting year, in my humble opinion.  Why do you think the bernsplink could barely get his words out while sweating like a fat bird at a disco?  He knows, he knows we know, and if he knows, his bosses know we know.

They are fucking shitting themselves.  The curtain at the back of the stage has been pulled back, and we can see the wall.

:-)    Bitchez

Thu, 01/16/2014 - 14:25 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

And they sponsor a club in the Premier League, meaning their operations are being advertised and therefore sanctioned around the world.

Honestly, the founders of Wonga would have been hung, in Medieval Europe, for their 'business practices'.  Theft and usury were illegal in those days, remember.

Thu, 01/16/2014 - 14:38 | Link to Comment Inthemix96
Inthemix96's picture

Herd, indeed they do, and believe it or not its my team Newcastle United, I live just outside the city mate.

And yes, if I had my way they would be hanged till dead, a legacy that will never be forgotten letting these bastards sponsor a football team????

Look how far these bastards are prepared to take us.  The reckoning will be brutal.

Thu, 01/16/2014 - 15:30 | Link to Comment dick cheneys ghost
dick cheneys ghost's picture

 

Edict of Expulsion

''In 1290, King Edward I issued an edict expelling all Jews from England. The expulsion edict remained in force for the rest of the Middle Ages. The edict was not an isolated incident, but the culmination of over 200 years of increased persecution. Oliver Cromwell permitted Jews to return to England in 1657, over 350 years since their banishment by Edward I, in exchange for finance.''

http://en.wikipedia.org/wiki/Edict_of_Expulsion

Thu, 01/16/2014 - 15:11 | Link to Comment Seeking Aphids
Seeking Aphids's picture

Usury it is.....but that has been around for a very long time and I don't think it will change this year. I agree that people are more aware but they still don't control the economy or the decision-making process......so what can they really do? Also, the author says the banks have no choice but to start lending but I don't get his logic.....why do they have no choice? Unless the Fed stops paying them to park the money I don't see why the can't keep doing what they are doing.....anyone get this argument? Please explain it to me if you do.......btw, on the topic of usury, I think compound interest was one of mankind's biggest mistakes...most people can't handle repayment of debts when the interest is compounding to infinity......shit happens but math is eternal and inhuman.....humanity must be brought back to the equation or we all become slaves to debt one way or another......

Thu, 01/16/2014 - 16:17 | Link to Comment Mediocritas
Mediocritas's picture

Oh it's even better than that. The inner circle banksters get paid three times before even lending a single cent.

When the Fed buys TSYs it is not permitted by law to do so directly and must engage the services of a primary dealer. The pointless middlemen PDs (list: http://www.newyorkfed.org/markets/pridealers_current.html ) naturally add a layer of expense when flipping TSYs to the Fed so rake in $billions every year for doing absolutely nothing (mandated by the "law"!).

In return, the Fed credits the reserve accounts of these PDs with fresh cash upon which it then pays interest upon excess reserves (IOER) as a "reward" for those poor, poor banks having to flip assets to the Fed (never mind that many of these "assets" were complete piles of dogshit with no value whatsoever in the first place, such as MBS). IOER is also spruiked as a mechanism to contain inflation by inhibiting lending as it's easier for banks to simply park reserves and earn interest rather than take the risk of making loans. Bullshit reason, but whatever.

Next, when the Fed collects profits from the government making coupon payments on the TSYs held by the Fed, the Fed then turns around and remits that money back to Treasury, but not before subtracting operational expenses which include the dividend it pays to its stockholders amongst whom may be found, surprise, surprise, the very same banks that flipped the TSYs to the Fed in the first place.

So three payments for doing absolutely nothing of use. Guaranteed $ from flipping TSYs to the Fed, guaranteed $ for the interest paid on reserves credited after the flip, guaranteed $ from their cut of US govt debt repayments.

We go on about central banks, but this situation makes it abundantly clear how the Fed is simply a servant, a little bitch for its member banks. Ironic how banksters rail against unions so much yet their entire model is a union (Fed) representing its members (primary dealers and other anonymous financial titans).

Thu, 01/16/2014 - 14:13 | Link to Comment Catullus
Catullus's picture

Question: what happened to sweeps? Do they still exist?

Thu, 01/16/2014 - 14:19 | Link to Comment Richard Whitney
Richard Whitney's picture

Lending has stagnated since Lehman due to the absence/reluctance of borrowers.

Ths article implies that the banks just turn on lending. Is it that easy? And if they can turn it on, why haven't they already done so?

Thu, 01/16/2014 - 14:30 | Link to Comment Quinvarius
Quinvarius's picture

The banking system as a whole is loaning the US government a trillion a year.  I think they are working just fine.  Plus, they get interest on deposits at the Fed.  So they are technically loaning to the Fed too.  As long as the ponzi dynamic holds up, why risk loaning to the public or the real economy?

Thu, 01/16/2014 - 14:31 | Link to Comment Darksky
Darksky's picture

I've been debating this with a buddy, but I'm not smart enough to figure it out. What happens if the banks start lending, but noone shows up to borrow. I mean noone is buying crap from macys, jcp, sears, best buy, and for gods sake people cant afford $1 shit at family dollar. Am i supposed to believe they will show up for Corvette Z06 and/or McMansion loans.

Thu, 01/16/2014 - 14:43 | Link to Comment Quinvarius
Quinvarius's picture

I think most real people won't ask for a loan unless they have income coming in to make payments.

Thu, 01/16/2014 - 15:50 | Link to Comment Yes We Can. But...
Yes We Can. But Lets Not.'s picture

Prolly Odoofus would induce lending/borrowing by guaranteeing bank non-mortgage loans, just like the gubmint already through the GSE's guarantees like 85% of mortgage loans.  The FreeShitArmy would load up on debt and head for the casinos.

Fri, 01/17/2014 - 14:13 | Link to Comment chdwlch1
chdwlch1's picture

A new war should be sufficient to replace the low demand from the private sector. A global war would even set the stage for sovereign deleveraging and a monetary system reset. Just sayin'....

Thu, 01/16/2014 - 15:41 | Link to Comment LMAOLORI
LMAOLORI's picture

 

 

 

The Yin and the Yang...

 

Some claim it's because we have no creditworthy borrowers...

 

"Banks won’t lend until the American people are creditworthy again — and that takes full employment."

http://www.rooseveltinstitute.org/new-roosevelt/real-reason-banks-aren-t...


But it couldn't have anything to do with the fact that they are making money off of IOER could it?  

 

How Bernanke Can Get Banks Lending Again

If the Fed reduces the reward for holding excess reserves, banks will have to find something else to do with their money, like making loans or putting it in the capital markets

"But suppose it doesn't work. Suppose the Fed cuts the IOER from 25 basis points to minus 25 basis points, and banks don't lend one penny more. In that case, the Fed stops paying banks almost $4 billion a year in interest and, instead, starts collecting roughly equal fees from banks. "

http://online.wsj.com/news/articles/SB1000087239639044487320457753721273...

 

     

     

    Thu, 01/16/2014 - 14:42 | Link to Comment Toolshed
    Toolshed's picture

    Banks can effectively "turn on" lending by reducing lending standards. The reason they have not done so is because the return on the excess reserves, as utilized by said big banks, was much lower risk than loans to the underpaid slobs who actually wanted/needed to borrow the funds. Those among us who still have a decent credit rating have no trouble getting credit. In the past 2 years I have opened 5 credit card accounts which all had 12-18 months zero interest introductory offers. As soon as the zero interest period expires, I shelve the card. The banksters don't pay interest, so why should I? My credit score is in the low 700's, which is good, but not great. However, there are not enough sheep with good credit that are willing to pay 17-25% interest to the theives, er, banksters to tempt them away from the virtually risk free Fed buffet. Obviously, it is a bit more complex than that, but that is the gist of it. Why take risks when the FED will provide you with free and easy profits. The Fed is still greatly subsidizing domestic and foreign banks by paying higher interest on excess reserves than the interest they are charging banks for funds from their discount window. Pretty seriously fucked up shit.

    Thu, 01/16/2014 - 14:24 | Link to Comment Yen Cross
    Yen Cross's picture

        Tyler you forgot to mention the other $1 trillion+  the European banks have that the Fed. is paying interest on excess reserves for.

    Thu, 01/16/2014 - 15:37 | Link to Comment Tyler Durden
    Tyler Durden's picture

    It was mentioned.

    Thu, 01/16/2014 - 14:27 | Link to Comment moneybots
    moneybots's picture

    "...banks will have no choice but to flood the country with $2.5 trillion in loans..."

     

    Who is going to borrow the money when income is falling?

    Thu, 01/16/2014 - 14:44 | Link to Comment LMAOLORI
    LMAOLORI's picture

     

     

    "Who is going to borrow the money when income is falling?"


    Welfare recipients?  

     

    New Mortgage Rules Another Empty Obama Promise


    "About the only thing the new rules require is income documentation and debt limits for borrowers.

    But they at the same time let borrowers count welfare payments as qualifying income and exceed the 43% debt-to-income threshold if they get their loan guaranteed through a government mortgage agency.

    Since Fannie, Freddie and FHA now control 90% of the mortgage market, that won't be hard to do."

    http://news.investors.com/ibd-editorials/011314-686229-new-mortgage-rule...

     

    Mr. Bubbles

    https://www.youtube.com/watch?v=2as4TAsLA44

    Thu, 01/16/2014 - 14:30 | Link to Comment El Vaquero
    El Vaquero's picture

     

    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.

    You know that we live in a fucked up world when having freshly printed money on your books is a liability.  But then again, freedom is slavery.

    Thu, 01/16/2014 - 14:31 | Link to Comment virgilcaine
    virgilcaine's picture

    "4 over levareged mega banks and a dying Economy". Bernanks Tombstone.

    Thu, 01/16/2014 - 14:32 | Link to Comment no more banksters
    no more banksters's picture

    "Despite the swap scandal of "fixing" the Greek deficit by Goldman Sachs, for which the Greek government paid the bank at least 300 million euros, (http://www.nytimes.com/2010/02/14/business/global/14debt.html?pagewanted...), Goldman Sachs is included in the Primary Dealers list, in order to continue providing "valuable services - advice" to the Greek government. Another two banks, Merrill Lynch and Citigroup, are included in the Primary Dealers list, despite that according to the US Financial Crisis Inquiry Commission (FCIC) report, together with Goldman Sachs, are those responsible for the "creation" of 30% of the destructive financial "tools" known as CDOs during 2004-2007, which contributed significantly to the creation of the housing bubble in US. Two more banks which had significant presence in CDOs that time are Deutsche Bank and UBS, which also continue to be two of the twenty two Primary Dealers."

    http://failedevolution.blogspot.gr/2013/11/an-example-of-how-banking-car...

    Thu, 01/16/2014 - 14:33 | Link to Comment SheepDog-One
    SheepDog-One's picture

    Also don't forget the foreign banks as well which the Fed stuffed full of trillions.

    Thu, 01/16/2014 - 14:38 | Link to Comment toros
    toros's picture

    The real losers here are the bankers themselves.  It looks like they've painted themselves in a corner where the only way for them to make money is by printing money for themselves.

    Thu, 01/16/2014 - 14:58 | Link to Comment yogibear
    yogibear's picture

    Flawed. Enriching a few at the expense of many. The banks are making money through the Fed. Mark to fantasy accounting worked well in 2007 and it should do the well now (sarc )

    Maybe the vampire squid will hire Bernanke to finish god's work.

    Thu, 01/16/2014 - 14:58 | Link to Comment virgilcaine
    virgilcaine's picture

    Small & Mid Banks in flyover Country  (anywhere outside Nyc, LA, DC)  aren't feeling the QE luv.. they are dying and so are the communities they serve. You see they actually serve a function outside the Mega WS Hedge Fund  "Banks".

    Thu, 01/16/2014 - 15:04 | Link to Comment Yen Cross
    Thu, 01/16/2014 - 16:42 | Link to Comment LMAOLORI
    LMAOLORI's picture

     

     

    Count me among the skeptics...

    Skeptics Question Banks’ Bottom Lines

    http://dealbook.nytimes.com/2014/01/15/skeptics-question-banks-bottom-li...

    Thu, 01/16/2014 - 15:12 | Link to Comment Kirk2NCC1701
    Kirk2NCC1701's picture

    In case some of you still don't know it... CITI is majority-controlled by the Saudis.

    They are the single largest shareholder and can easily swing Citi policy one way or another. 

    IOW, between their oil supplies, their role as the Petro-Dollar anchorman, geo-political location, buying tons of MIC HW, and being a Prime Dealer (shareholder of the Fed), they are SO far up our American rectums, that it would take a massive and sustained enema to get them out of our shitty system.

    To borrow from another 'captain': "Savvy?"

    Thu, 01/16/2014 - 15:07 | Link to Comment Per Kurowski
    Per Kurowski's picture

    Not so fast! There is a catch to that. How much capital would the banks need in order to do that?  

    Currently banks have all funds parked in what is perceived as “absolutely safe”, and therefore requires them to hold almost no capital… But, if they are going to convert those assets into loans to the risky… either the regulations need to change… or banks must start raising capital like crazy.

    http://subprimeregulations.blogspot.com/2014/01/the-basel-committee-inco...

     

     

     

    Thu, 01/16/2014 - 15:26 | Link to Comment Kirk2NCC1701
    Kirk2NCC1701's picture

    All fiat currency, fiat credit and fiat debt is backed by the state's power to act as the Enforcer Par Excellence:  As the Ultimate Bully, as the Bully of Last Resort.  For when simple deceit, subterfuge and intimidation from Money Changers (MCs) and their Agents fails.

    Even Empire-grade Über-Bullies like the US (a latter-day Rome) have a life-cycle and a lifespan. 

    Perhaps the only way for the MCs to prevent Judgement Day and Payback from occurring, is to aim for a One-World Financial Government -- and to rule forever and ever like an earthly deity.

    Thu, 01/16/2014 - 15:58 | Link to Comment virgilcaine
    virgilcaine's picture

    Anyone waiting for that money to make it into the Economy ie Inflationary boom, see the declining Crb and BDI,

    will be waiting  a lOOONG time. It's meant to sit on the Banks Bal sheet. and sit and sit...

    Thu, 01/16/2014 - 16:44 | Link to Comment pashley1411
    pashley1411's picture

    predeceasor to the chairman of the federal reserve

    http://en.wikipedia.org/wiki/Pied_Piper_of_Hamelin

    it starts with taking care of today, it ends with stealing tomorrow.

    Thu, 01/16/2014 - 17:28 | Link to Comment LMAOLORI
    LMAOLORI's picture

     

     

    Bernanke's other legacy concentrating the money into fewer banks that they now claim they CAN'T PROSECUTE for that very reason!

    Why ‘Too Big to Fail’ Is a Bigger Problem Than Ever

    http://www.thefiscaltimes.com/Articles/2014/01/09/It-Time-Break-Big-Bank...

    Thu, 01/16/2014 - 22:01 | Link to Comment Cashcollateral
    Cashcollateral's picture

    Hold on, stop. The deposits sitting with the Fed have no impetus to be loaned out. They're paid IOER for being idle. The Fed isn't annulling them or retracting them as a part of the taper. If there was profit to be made by lending the excess liquidity out, you can bet the banks would be doing it already. In fact, lending is actually counterproductive at this point: in order to fire loan growth in this market, they'd need to lend at lower rates by compresssing margins even further, which considering the issue-cost of new lending almost certainly will reduce net book ROE. Besides, as the article itself states, the reserves are used as collateral for other transactions: you can't just up and move it around without breaching all kinds of agreements. 

    The only situation where the banks may be forced to lend is if IOER was negative: but the Fed knows that dumping USD2.5tr into the system will fuck everything up, so I don't see them making that decision consciously, not when they can just let the reserves roll off as their securities book matures.

    Data from the article is very interesting but I have absolutely no idea how they came to the conclusions in the last three paragraphs.

    Fri, 01/17/2014 - 03:33 | Link to Comment EconMania
    EconMania's picture

    Can banks actually lend out ? Standard and poor doesn't think so apparently.

    http://www.standardandpoors.com/spf/upload/Ratings_US/Repeat_After_Me_8_...

     

    Fri, 01/17/2014 - 09:36 | Link to Comment EZYJET PILOT
    EZYJET PILOT's picture

    For fuck sake, they won't taper!!

    Do NOT follow this link or you will be banned from the site!