JPMorgan Tells Banks to Partner Up as U.S. Deposit Drain Looms

Bloomberg reports:

JPMorgan Chase & Co. has some advice for regional banks: A deposit drain is coming, so merge while you can.

The company’s investment bankers are warning depository clients that they may begin feeling the crunch in December, thanks to a byproduct of how the U.S. Federal Reserve propped up the economy after the financial crisis, according to a copy of a confidential presentation obtained by Bloomberg News and confirmed by a JPMorgan spokesman.

JPMorgan argues that some midsize U.S. banks -- those with $50 billion in assets or less -- could face a funding problem in coming years as the Fed goes about shrinking its massive balance sheet, according to the 19-page report the New York-based bank has begun sharing with clients.

The Fed’s bond-buying spree from 2009 to 2014, dubbed quantitative easing, inadvertently left the industry flush with deposits. Investors took money they got selling mortgage-backed bonds and Treasury securities to the Fed and parked it in U.S. retail and commercial bank accounts.

This created some $2.5 trillion in excess bank deposits, according to JPMorgan. It estimates that 60 percent, or $1.5 trillion, of that money will trickle out of banks in the next four to five years if the Fed follows through with recent guidance and begins reversing quantitative easing in December.

The Fed is currently holding about $4.5 trillion of securities. The way it will get rid of them is by letting them mature and not buying new ones.

An article well worth your time. The un-free market in banking in the news.