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The Fed's Rate Hike Trickles Down: JPM To Hike Deposit Rates... For Its Wealthiest Clients

Tyler Durden's picture




 

Moments after the Fed announced it would hike rates for the first time in 9 years on December 16, the ink on Yellen's statement was not yet dry and one after another bank announced it would hike its respective Prime rate - the benchmark rate on everything from small business loans to credit card monthly fees - from 3.25% to 3.50%.

Yet while banks scrambled to increase how much they collect courtesy of the Fed's rate hike, none showed any interest in boosting the interest they pay on deposits, a rate which currenly averages below 0.1% across the US financial system. 

As the WSJ put it two weeks after us, "hours after the Fed’s decision earlier this month, the largest U.S. banks announced increases in the prime rate, a reference rate for a variety of loans including credit-card debt. But most banks didn’t make any corresponding hikes to the interest they pay to depositors. The moves signaled that at least for now most banks hoped to pocket the gains from the Fed’s move."

And this is what we said two weeks ago, "those who have savings at US banks, please don't hold your breath to see any increase on the meager interest said deposits earn: after all banks are still flooded with about $2.5 trillion in excess reserves, which means that the last thing banks care about is being competitive when attracting deposits."

We were wrong: some should certainly have held their breath, because as the WSJ reports today, "some bank customers won’t have to wait much longer to reap benefits from the Federal Reserve’s decision to raise interest rates."

Case in point: J.P. Morgan, which will begin raising deposit rates for some of its "biggest clients" in January. "Biggest" clients, of course, is a universal euphemism for "wealthiest."

The WSJ adds that J.P. Morgan’s deposit-rate increase will affect most institutional clients and the size of the increases will vary, the person said. They will apply to “operating” deposits, which are deemed stickier and less likely to be withdrawn in a crisis.

Operating deposits are more attractive to banks than so-called excess or “nonoperational” deposits, which are considered riskier. New regulations require that banks hold bigger capital cushions for deposits considered riskier such as noninsured balances held by hedge funds.

Another word for nonoperational deposits are "those held by 99% of the population", or those who actually would benefit from an increase in the deposit rate.

Banks in the U.S. have moved aggressively in the past two years to reduce those nonoperational deposits. State Street Corp. earlier this year took the unusual step of charging some clients for large deposits and J.P. Morgan cut that type of deposit by more than $150 billion in 2015.

The decision to pay its wealthiest clients is a first, or as the WSJ calls it, "an early mover among its American rivals."

Representatives for Bank of America Corp. , Wells Fargo & Co. and Citigroup Inc. said there has been no change to deposit rates at the banks. A representative for Goldman Sachs Group Inc. had no immediate comment, while one for Morgan Stanley declined to comment.

However, now that a first-mover has emerged, expect every other bank to follow suit, since as much as they don't need deposits now, they are well aware that when (if) the Fed drains the $2.6 trillion in excess reserves and banks have to rely on deposit funding once more, those banks which lost the most clients with "operating" deposits will be severely disadvantaged.

Unfortunately, for all those who have less than a few hundred thousand parked in a deposit account collecting nothing (and at a constant risk of "bail-in") and are thus considered "nonoperational" accounts by the management teams of banks bailed out by taxpayers just a few years ago, you can continue holding your breath for a long time until the trickle-down generosity of Janet Yellen bathes you in the most immaterial of deposit rate hikes.

 

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Mon, 12/28/2015 - 19:03 | 6972112 razorthin
razorthin's picture

God damn it, can they all be hanged now?

Mon, 12/28/2015 - 19:42 | 6972249 HedgeAccordingly
HedgeAccordingly's picture
my bad 
Tue, 12/29/2015 - 00:40 | 6973078 glenlloyd
glenlloyd's picture

Geez, they've been screwing us royally since the beginning of the GFC, now they want us to accept their golden showers?

F that...

Mon, 12/28/2015 - 19:08 | 6972131 Captain Obvious.
Captain Obvious.'s picture

It will be interesting to see if the wealthy take the bait.

There's always free cheddar in the mousetrap.  Or is that Rattrap ?

Mon, 12/28/2015 - 19:35 | 6972225 KesselRunin12Parsecs
KesselRunin12Parsecs's picture

I'd rather keep my money in 'The Bank of the Bottom of the Lake' than The Morgue

Mon, 12/28/2015 - 19:37 | 6972233 Duc888
Duc888's picture

 

 

 

 

....so tell me one more time how the Fed works for the American Shitizens?  I missed the memo.

Mon, 12/28/2015 - 19:41 | 6972243 two hoots
two hoots's picture

The rest of us will soon go to NIRP to create a fair balance.

Mon, 12/28/2015 - 19:44 | 6972258 Dragon HAwk
Dragon HAwk's picture

The reason they hate cash is because it costs money to ink the paper and once it's printed it never has to go back thru the doors of a bank..

Mon, 12/28/2015 - 19:56 | 6972293 Kefeer
Kefeer's picture

Was it the Jews that killed the Roman empire, Ottoman, or Babylonian empire or was it greedy and corrupt men and women; get the point?  I hope so, for we are all cut from the same fabric...admit it or not.  Just pointing out the facts.

Mon, 12/28/2015 - 20:09 | 6972331 NotApplicable
NotApplicable's picture

Methinks you underestimate the power of social networks. Otherwise perhaps, these collapses wouldn't benefit the same minority, time and again.

Mon, 12/28/2015 - 20:44 | 6972445 ToSoft4Truth
ToSoft4Truth's picture

Mob Justice

Mon, 12/28/2015 - 20:00 | 6972302 SillySalesmanQu...
SillySalesmanQuestion's picture

That photo says it all...
Fuck you Jamie.

Mon, 12/28/2015 - 20:22 | 6972387 blue51
blue51's picture

Is JPMorgan setting up shop, for a place for the big money cashing out of the casino before it tanks?

Mon, 12/28/2015 - 21:40 | 6972598 Suleyman
Suleyman's picture

As long as the money and debt volume increases, there will be no real change in interest rates.

Mon, 12/28/2015 - 22:33 | 6972755 GRDguy
GRDguy's picture

They're just tryin' to encourage some folks to keep their deposits there until the bail-in happens.  It's all part of their culture of lyin' and stealin'.  

Mon, 12/28/2015 - 23:06 | 6972855 Barrack Chavez
Barrack Chavez's picture

Who cares? the average US taxpayer has less than $1000 in savings after the Obama "recovery"... what are they going to earn interest on?

If JPM paid muppets 10% interest on $200 deposits, so what? How would that matter?

If JPM were to repay the billions in subsidies that Bernanke / Yellen stole from taxpayers and gave to JPM... now that might be interesting.

Mon, 12/28/2015 - 23:46 | 6972977 colddirt
colddirt's picture

Lemmy died today....nothing else matters

Tue, 12/29/2015 - 01:36 | 6973159 Wow72
Wow72's picture

They wouldnt want any money squeaking out now would they?

Tue, 12/29/2015 - 03:07 | 6973238 pitz
pitz's picture

What kind of moron lends money ('deposits') to this oufit anyways?

Tue, 12/29/2015 - 04:20 | 6973278 joga bonito
joga bonito's picture

Time for the USD to come home,RIP emerging markets cc frontier markets.

Tue, 12/29/2015 - 06:50 | 6973374 overmedicatedun...
overmedicatedundersexed's picture

certainly for the FED and Wall st, to be jewish is an advantage, heck for hollywood and tv land as well..control the message seems to be a jewish strong point (who owns the NY times? you ask), thugs like yellen and ben and alan and bob rubin, have been very good at the big lie. to be honest non jews go along with it as well, hank paulson and j dimon. the terrorists of the world never go after them makes one think the terrorists are controlled allies. although the 911 attack could be seen as hitting the banksters how many called out that day?

Tue, 12/29/2015 - 12:19 | 6974189 A is A
A is A's picture

I call bullshit. This whole "sticky" deposit argument doesn't make sense. If the deposits are going to stay there regardless, what is the incentive to raise the savings rate? On the flip-side, if you are worried about "non-sticky" deposits being higher in risk for leaving, wouldn't you have an incentive to raise their savings rate to encourage them to stay?

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