December 8, 2014

FORCED TO ACCEPT INTEREST:

Banks Urge Clients to Take Cash Elsewhere (KIRSTEN GRIND,  JAMES STERNGOLD and  JULIET CHUNG, Dec. 7, 2014, WSJ)

Hundreds of companies and other bank customers with deposits that exceed the insurance limits could be affected by the banks' actions.

Overall, about $4 trillion in deposits at banks in the U.S. were uninsured, covering more than 3.5 million accounts, according to Federal Deposit Insurance Corp. data.

The rule primarily responsible involves the liquidity coverage ratio, overseen by the Federal Reserve and other banking regulators. The new measure, finalized in September, as well as some other recent global regulations, are designed to make banks safer by helping them manage sudden outflows of deposits in a crisis.

The banks are required to maintain enough high-quality assets that could be converted into cash during a crisis to cover a projected flight of deposits over 30 days.

Because large, uninsured deposits would be expected to leave most quickly, the rule will now require that banks maintain reserves that they cannot use for profitable activities like making loans. That makes it much less efficient or profitable for banks to hold these deposits.

The new rules treat various types of deposits differently, based on how fast they are likely to be withdrawn. Insured deposits from retail customers are regarded as more safe and require that banks hold reserves equal to as little as 3% of the sums.

But the banks must hold reserves of as much as 40% against certain corporate deposits and as much as 100% of some big deposits from financial institutions such as hedge funds.

Some corporate officials said the new rules could make it more expensive for them to keep money in the bank or push them into riskier savings instruments such as short-term bond funds or uninsured money-market funds.

Posted by at December 8, 2014 1:05 PM
  

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