BANKS’ PROBLEM: TOO MUCH CASH

The economic crisis has left banks with slashed profits, record-thin margins, and more cash than they can find things to do with.
Customers have poured money into savings accounts in record volumes during the economic crisis and banks reaped additional revenue from late fees on credit cards, mortgages, and other loans.
These windfalls have given banks so much cash that the federal safety net to cover bank failures fell below its legal limit.
But, with businesses closed and millions jobless, banks have too few venues for putting that cash to work – a key reason why banks’ profits are not growing and the industry’s stocks have lagged the broader markets’ rally.
The banking industry’s net income plummeted 70 percent in the year’s second quarter, compared to the same period in 2019, according to the U.S. Federal Deposit Insurance Corporation’s quarterly report. Although 4,624 small banks increased their net incomes by $202.5 billion year-on-year, Bank of America, Citibank, JPMorgan Chase, and Wells Fargo accounted for half the loss.
Banks set aside a total of $62 billion in loan-loss reserves in the quarter, adding to the $53 billion reserved in the first.
TREND FORECAT: When the “Greatest Depression” hits Wall Street, we forecast a wave of businesses will go bankrupt, and when commercial, retail, and residential real estate prices tank, banks will not have the funds to cover their losses.
In a repeat of the Panic of ’08, failing banks will again be deemed “Too Big to Fail” by the government and will be bailed out by the central bank partners and American tax payers.