Business Customers Are Tired Of Being Bilked Of Billions; Demand Rate Increases On Their Bank Deposits

As we're all well aware by now, once Trump was elected on November 8th the Fed suddenly decided it was no longer necessary to prop up asset prices in the United States with artificially low interest rates.  As such, they've embarked on their first rate-hiking spree since the last one ended just over a decade ago. 

 

Meanwhile, in light of the fact that the Fed has raised rates by 75bps over the past 6 months, we recently wondered aloud just how long the big banks could continue to stiff Americans out of interest payments on their deposits.  As the Wall Street Journal points out today, despite three Fed rate hikes over the past several months, the average rate paid on deposits at the 16 largest banks in the U.S. has risen a paltry 10 bps.

Meanwhile, with nearly $12 trillion held in deposit accounts at U.S. commercial banks, each 25bps of foregone interest is costing depositors about $30 billion a year, all of which is flowing straight to the bottom line of the large banks.

 

In the end, we concluded that the banks would continue to suppress deposit rates for as long as their customers continued to ignore the fact that they were getting shafted but that, over the long haul, math and greed would prevail and depositors would demand higher rates.

Alas, it seems as though the "long haul" that we predicted has arrived well ahead of schedule...at least for business customers anyway.  As the Wall Street Journal points out today, corporate customers are starting to demand higher rates on deposits and, for the most part, the large banks are acquiescing.

Consumers are giving banks a pass when it comes to shopping for higher interest rates on deposit accounts. Businesses, on the other hand, are becoming more demanding.

 

With short-term interest rates on the rise, corporate depositors are seeking bigger payouts for their deposits, and big banks have started capitulating.

 

The reason: Small rate increases are often worth just pennies to many consumers, but they can translate into meaningful dollars on large corporate deposits of millions or even billions of dollars.

 

And companies have greater leverage with banks since in many cases they also bring in lucrative investment banking and trading business.

 

“The jig is up,” said James Gilligan, assistant treasurer at Kansas City, Mo.-based power company Great Plains Energy Inc. He said many companies, including his, have negotiated better deposit pricing with banks where they also borrow. Treasurers who have the flexibility to move their money are also seeking out higher rates.

Of course, the reality is that banking institutions offer fairly commoditized products with minimal differentiation and barriers to switching, aside from the pure hassle, are not that extensive.  So while banking executives may tout their position of power in negotiating to keep deposit rates lower for longer, in the end they'll be forced to take whatever rate the market demands...

“The way we approach pricing these days is, we defend our turf,” says Tayfun Tuzun, chief financial officer at Fifth Third Bancorp , the Cincinnati-based bank. Mr. Tuzun said U.S. banks are also being pressured by competition from overseas banks that want to build their deposits. Some are willing to pay 1.25% or 1.3%, he said, while a typical corporate deposit rate for a large account in the U.S. currently is about 0.9% to 1%.

 

More corporate customers say that day is now passing. “A year ago, it was not worth the time it takes to make a phone call” and push for a higher rate, said Jeff Glenzer, vice president at the Association for Financial Professionals, an industry group for corporate treasurers. “The higher the rate becomes, the more attractive it is to worry about where the money sits.”

 

Most banks are already awash in more deposits than they need, causing some analysts to predict they’ll be stingy on corporate deposit rates, especially with loan growth softening in recent months.

 

“We’ll use pricing to start relationships,” said Darren King, CFO of M&T Bank Corp. , based in Buffalo, N.Y. “But over time, relationships need to work for both us and the customer.”

And, then again, maybe Yellen will completely cave on rate hikes if equity markets ever decide to decline for more than 30 minutes at a time and this whole discussion will be moot.

Comments

Delving Eye RafterManFMJ Tue, 07/25/2017 - 21:18 Permalink

Banks don't need to raise interest rates because they know people are afraid to put their cash at risk -- like in the stock market -- so they'll keep it in a savings account so they can sleep at night.The best way to get a better return on your cash is to move it to an online bank like Goldman Sachs, which gives 1.2% on savings, and good rates on CDs (1.4%/12-month). The money is FCIC-insured, too. I've got mine stashed there. Just moved it from CapOne360, even after they just raised their rate to 1.1 from 1.0, which ain't good enough. 

In reply to by RafterManFMJ

ebworthen Tue, 07/25/2017 - 21:07 Permalink

And now that the banksters have citizen's locked into direct deposit and debit/credit cards we will get 0.08% on deposits from here to eternity.  If you use cash you're a drug dealer or a terrorist.

TeethVillage88s Tue, 07/25/2017 - 21:08 Permalink

God Damned puffed up 65 year old farmer told me shit, then I asked well who else will lobby for higher interest rates on our individual savings...

THEN he shut up, and we haven't seen increases since 2007.

WorkingClassMan Tue, 07/25/2017 - 21:10 Permalink

(((Goldman Sachs)))) pays me a meagre 1.20% on my savings, I was with GE and they got swallowed up by (((Goldman-Sachs))) and I haven't left because I need the pittance they pay more than the other scumbanks; at least I need them temporarily.  If and when I get other shit together, bye bye squid.

pitz Tue, 07/25/2017 - 21:16 Permalink

Business banking customers can buy T-Bills, commercial paper, whatever.  But of course since its just businesses actually lending money to the banks these days, the banks are ripe for being squeezed.

konadog T-888 Tue, 07/25/2017 - 23:54 Permalink

You might want to move from Bank of Tempurpedic (BOT) to Bank of Bullion (BOB). You lose money every year in BOT thanks to govt created inflation that steals from you. Gold and silver in BOT have some volatility, but they retain full value beautifully over time. As the old saying goes, an oz of gold still gets you a finely tailored suit just as it did 200 years ago or 2000 years ago. Try that with fiat in BOT.

In reply to by T-888

JailBanksters Tue, 07/25/2017 - 21:47 Permalink

If a Bank doesn't pay at LEAST the CPI rate, then the Banks are Basically stealing your Money.This just ensures the "VALUE" of the Toilet Paper is the same, you're not making a Profit.But wait, there's more ... The Club FED claims there's no Inflation, and if there's NO Inflation the Bank can pay you Squat, while at the same time paying the same amount of Money but actually getting less Product at the Checkout.Now the Government on the Hand, views Interest as Money for Nuttin and therefore it's a Profit and if it's a Profit, it should be Taxed.So either the Banks steals your Money, or the Government steals your Money.  

Cabreado Tue, 07/25/2017 - 21:50 Permalink

"Americans will always do the right thing, only after they have tried everything else."Still a new equilibrium coming, no matter what...but it's heartening to see the fed-up-ness gaining ground.The Controllers don't stand a chance.

bluskyes Tue, 07/25/2017 - 21:50 Permalink

My credit union rep told me that she was embarassed to offer me 2% on a term deposit. They were, however, offering 1.65% on a no term savings account.

sgorem Tue, 07/25/2017 - 22:03 Permalink

"......................because that's where the money is."................hopefully, we'll see more Willie Sutton clones in the near future, and even more hopeful that they'll kill a few, i mean A Lot of bankers while they're at it. say "amen brothers" 

Ben A Drill Tue, 07/25/2017 - 22:21 Permalink

Are you telling me I held out longer than major corporations? That's truly shocking when everyone said the market can remain solvent longer than I can. Wow? Did I win something?

wisehiney Tue, 07/25/2017 - 22:39 Permalink

Keep a core dividend paying postion in TLT and carefully trade around it.Use inverse tbond ETF's as hedge sometimes.Becomes easy after a while.I have become clairvoyant in reading "their" bullshit.And using it to get paid.

Catullus Tue, 07/25/2017 - 22:40 Permalink

I didn't move money until I realized how it easy it was.

Takes about 30 minutes to open a savings account that pays you 120x what the major money center banks will.

Catullus pitz Wed, 07/26/2017 - 00:46 Permalink

And why would I buy a 52 week t bill at 1.2% when I can get paid 1.2% on a savings account?

They're not buying t-bills with the money in savings accounts. The Fed pays the banks interest on excess reserves. Why loan money at .9% when the Fed pays 1.25% on every dollar held in reserve at the Fed?

Only institutional money and foreign banks hitting capital reserve requirements buy t bills.

The whole thing is bullshit right now.

In reply to by pitz

pitz Catullus Wed, 07/26/2017 - 01:14 Permalink

"And why would I buy a 52 week t bill at 1.2% when I can get paid 1.2% on a savings account?" Because you dont feel comfortable lending to a bank without receiving a premium, perhaps?  "when the Fed pays 1.25% on every dollar held in reserve at the Fed?" Why wouldn't they pay this?  Why would the banks keep anything at the Fed if they could just use the $$ to buy T-Bills?  The Fed would be drained if they stopped paying.

In reply to by Catullus

meditate_vigorously (not verified) Tue, 07/25/2017 - 22:56 Permalink

It is a lie that there is any correlation whatever between 'deposits' and credit.