Cash -- or something close to it -- is king again.
Cash -- or something close to it -- is king again. 
Enjoying
a steady job market but reluctant to spend freely due to economic
uncertainty, a wide swath of middle-class Americans are hoarding money
in banks.
Total bank deposits rose 6.6% last year
to $10.7 trillion, extending steady growth seen in recent years, data
from the Federal Deposit Insurance Corporation show.
Deposits
measured as a percentage of bank assets are 77.6% in the first quarter
of 2017, the highest since 2006, according to data economic research
firm Moebs Services.
And Americans love
liquidity. They hold about $2 trillion in checking account now, says
Mike Moebs, CEO of Moebs Services, which provides research and
consultancy services to financial institutions. The average U.S.
checking account deposit is about $3,600, climbing from $1,000 in 2007,
he says.
Much of deposit growth surely has to do
with the resilient U.S. economy that continues to expand from the depths
of the financial crisis. Steady paychecks are the industry's best
friend.
"Incomes
are up and people are choosing to deposit (their money) rather than
increase spending," says Paul Merski, group executive vice president of
congressional relations and strategy for the Independent Community
Bankers of America.
A dearth of investment options
is also driving the hoarding behavior. Only about half of Americans are
invested in the stock market, according to Gallup. And other common
options, such as certificates of deposits and savings accounts, are
offering interest rates that are barely above those of checking
accounts.
While
saving is deemed a personal finance virtue, would-be shoppers holding
tightly onto their budgets can also be a drag on the economy. U.S.
consumer spending was relatively flat, up only 0.1% in May, the latest
data from the Commerce Department show. Retail and auto sales have also
been sluggish.
Consumers
"are not spending," Moebs said. "The Great Recession isn’t over for
consumers and small businesses. Small businesses feel a great deal of
uncertainty and they’re being very cautious, especially with any capital
plans they have. "
High
debt obligations also are affecting household spending decisions. Total
household debt balances rose by 1.2% in the first quarter from the
previous quarter to $12.73 trillion, according to the Federal Reserve
Bank of New York. That's 11th consecutive quarter of growth and
surpasses the peak of $12.68 trillion seen in the third quarter of
2008.
Bountiful customer deposits also likely
helped boost large banks' incomes, and the rising numbers will be
reflected in a slew of bank earnings reports due in the next few days.
Banks also stand to benefit from "a reasonable
rise" in interest rates, Merski said. Federal Reserve Chair Janet Yellen
told Congress Wednesday that the central bank plans to keep raising
its key short-term rate. As interest rates rise, the "spread" in the
rates between what they earn in loans issued and the interest paid to
deposit customers also increases. "If banks can make more spread, they
may also make more loans," he said.
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