JPMorgan Chase & Co. (NYSE:JPM) is one of several of the nation’s biggest banks that are having a knee-jerk reaction to new regulations regarding deposits. The new regulations are in relation to updated liquidity and capital requirements. They put large short-term deposits that are uninsured into the risky category, thus requiring banks that handle these deposits to keep larger cash reserves on hand.
JPMorgan starts charging more fees
Bloomberg reported on Monday the JPMorgan Chase & Co. (NYSE:JPM) is telling some of its hedge fund clients to pay a fee for their deposits or otherwise take their business somewhere else. The bank reportedly told customers it will start charging fees to keep some deposit accounts open.
Bloomberg also reported that Deutsche Bank AG (NYSE:DB) (ETR:DBK) has discussed making some changes to its deposit accounts as well. HSBC Holdings plc (NYSE:HBC) (LON:HSBA), Citigroup Inc (NYSE:C) and Bank of America Corp (NYSE:BAC) have also reportedly told clients that the new regulations on deposits are taking a bite out of their profits.
New regulations a bad idea
An expert told CNBC this week that the new regulations are simply a bad idea. However, he also said they should benefit small regional banks.
Chris Whalen of Kroll Bond Rating Agency told CNBC that the economists who made the rules “don’t have a clue of what they’re doing.” He called the new rules “a really bad idea” and said it’s not possible to “measure liquidity the way that they proposed.”
The Federal Reserve wants banks to keep assets that are less risky on their balance sheets. The deposits of hedge funds and small banks can be rather volatile at times, so as a result, the new rules make them expensive to maintain. That’s because they require a lot of work to keep the banks in compliance with the new rules.
Whalen thinks the issue is about economics in addition to regulation. He said big banks can’t turn profits on “the huge inflows of deposits” and that the big banks are unable to deploy the funds. His advice for investors is simply to go to community banks because they’re more motivated to lend money. He said big banks are now overregulated and have “operational issues” too.