Do banks need your money?
Bank of America revealed yesterday that the number of customers closing their accounts spiked last quarter, but officials didn't seem concerned. BofA CEO Brian Moynihan revealed the number of account closings jumped 20 percent in the last quarter, during the bank's earnings call on Thursday.
Many of those were related to the BofA's ill-fated attempt to charge customers $5 for using their debit cards. "We had some impact from the $5 debit fee," he said. "That's why we made a decision to reverse it."
But if Moynihan seemed to understate the impact of the account closings, it's because the real secret is that BofA doesn't want any more money in its coffers -- especially not money that costs the bank a lot to hold. On average, a bank spends a couple hundred dollars per year to maintain a checking account customer.
"They had some closings but when you look at liquidity, the last thing they need is more deposits," said Anthony Polini, an analyst with research firm Raymond James.
BofA isn't alone. It's arguable that none of the big banks need more money in the form of deposits. But do they have too much?
"Generally speaking, yes," said Dan Geller, president of Market Rates Insights, an economic research firm. "At the end of September we passed $10 trillion mark [for the first time] in history and out of that, $1.5 trillion is sitting at Fed. It's excess liquidity."
That means banks are sitting on piles of cash and those piles aren't doing very much for their balance sheets. Deposit interest rates overall fell by 26 percent in 2011 because of the low demand for loans, like mortgages, and because of conservative consumers, who preferred to keep their dollars in low-yield and low-risk deposit accounts, according to Market Rates Insight. Checking accounts saw an even bigger drop in interest rates: they fell from a national average of 0.48 percent in the beginning of the year to 0.07 by the end of 2011. So when there was a surge in bank cancellations in a single quarter, it's more understandable that Bank of America barely blinked.
Instead it is looking to other ways to drive revenue. Big banks, including Bank of America and Chase, are leaning on a reliable money maker instead: credit cards. Across the board, the biggest banks are posting fast growth in the card divisions, earnings calls revealed over the last week.