In a telling sign of economic malaise, banks are now telling large customers “we really don’t want your money”
According to an internal memo reviewed by The Wall Street Journal, J.P. Morgan Chase is planning to begin charging institutional customers for some of their deposits. In this clear sign of deflation in the U.S. economy, the megabank argues that the regulatory costs of maintaining the deposits are more than they make in interest in today’s extremely low interest-rate environment.
JPMorgan Chase apparently plans to shrink these kinds of deposits by up to $100 billion by the end of 2015, based on a presentation seen by a WSJ source on Tuesday morning.
Financial industry analysts note that large global banks have all been discussing how to discourage some deposits because of expensive new regulations and ultra-low interest rates.
More on JPMorgan Chase plan to charge for some deposits
The WSJ sources note that specifics are going unveiled Tuesday by J.P. Morgan executives at the bank’s annual strategy outlook with investors.
Keep in mind that the new fees for deposits will not impact retail customers, but a number of corporate clients and hedge funds, private-equity firms and foreign banks will be, according to the memo. The megabank is looking at close $200 billion in “excess” deposits from financial institutions out of $390 billion of total financial institutions deposits.
JPMorgan Chase is making the change because some deposits are less profitable than they used to be. The bank claims the new federal rules essentially penalize banks for holding deposits likely to be withdrawn quickly during a crisis or a stressed environment.
“We are adapting to a changing regulatory environment across our company,” noted the memo issued Monday and signed by the asset-management, commercial-bank and corporate and investment-bank chiefs.
Analysts note that JPMorgan Chase among the banks most impacted by new capital and liquidity rules. The memo notes the changes are needed for more interconnected clients that are considered risky by regulators. In addition to the bank’s relationships with hedge funds, foreign banks and private-equity firms, its dealings with central-bank clients are also likely to be impacted.
The institutional clients involved will be asked to reduce specific deposits viewed as more temporary by paying a new fee or moving the proceeds to a similar JP Morgan Chase account such as a money-fund sweep account. Some clients will be requested to hold their deposits at another bank.