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For the largest lenders, the decline in deposits this year may be a welcome trend, Chessen said. An increase coupled with weak loan demand means banks must purchase lower-yielding securities, driving down profit margins, he said.
Net interest margins, a measure of profitability represented by the gap between what banks pay depositors and what’s earned on loans, are falling across the industry. The figure at Wells Fargo and JPMorgan fell at least 0.3 percentage point in the fourth quarter from a year earlier, according to company statements.
“The bigger banks have to pay FDIC insurance on these deposits plus some of their capital and leverage ratios are adversely impacted,” Rajappa said. “Many of the banks don’t want these.”