U.S. Banks Have Cash Surplus Due to Increased Deposits During the Pandemic

Consumers put away money at a 33% higher rate in April.


Since the COVID-19 crisis first became apparent in January, there’s been a record-breaking $2 trillion surplus in deposit accounts across U.S. banks.

According to the FDIC, deposits in April soared by $865 billion. That amount was more than any record for an entire year.

Bank of America, Citigroup, and JP Morgan Chase, the largest U.S. banks by asset, saw more gains than smaller banks during the first quarter. Overall, at least two-thirds of the deposit gains were attributed to the 25 largest financial institutions. Those same megabanks survived the 2008 financial crisis.

Megabanks are comprised of branch networks all over the U.S. They typically offer more solid loan funding at cheaper rates, providing an advantage during times of economic crisis when interest rates are rock bottom.

U.S. megabanks have more retail customers in the U.S. than all other institutions. Most consumers didn’t have the chance to spend money while they were stuck at home. According to the U.S. Bureau of Economic Analysis, many consumers saved money at a record pace, with an increase of 33 percent in April.

Larger banks also serviced many customers in the Paycheck Protection Program, the $600 billion federal government ploy to help small businesses.

While the bulk of businesses in the U.S. lost billions of dollars in revenue once states started shutting down, banks benefitted from the deposit bonanza.

Some large corporations, like Ford and Boeing, also drew money out from their lines of credit and deposited tens of billions of dollars, while parking the money at the same financial institutions that made the loans.

Analysts say the pandemic drove the gains as the U.S. government released hundreds of billions of dollars to bolster the economy. The government sent out stimulus checks and paid out unemployment benefits to millions of Americans devastated by the pandemic’s financial repercussions.

Brian Foran, an Autonomous Research analyst, said: “Any way you look at it, this growth has been absolutely extraordinary. Banks are flooded with cash. They’re like Scrooge McDuck swimming in money.”

Personal income also climbed to 10.5 percent in April, likely owing to the federal government’s $1,200 stimulus checks and unemployment monies. In many instances, Americans made more from their unemployment benefits than they did their typical income.

Meanwhile, bank accounts were flooded with the excess. Brian Moynihan, CEO of Bank of America, pointed out that checking accounts with balances of $5,000 or less went up by 40 percent.

Many American citizens responded by hoarding cash, concerned about the future. The Federal Reserve had its own efforts underway to support the market, including a bond-purchase program with unlimited access.

Trust banks also gained deposit money after the Fed’s bond program received mortgage securities worth billions of dollars. Trust banks are the custodians for investments from asset managers like Fidelity.

Foran said that should a recession occur, banks will be more cautious about lending. “A lot of banks are saying, ‘There’s frankly not much we can do with it right now.’ They have more deposits than they know what to do with,” Foran emphasized. 


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