Mellon Bank Discourages Cash from Markets

[thriftyandboringinohio]

BNY Mellon imposes fee on rapidly growing deposits





By Richard Leong and Emily Flitter
NEW YORK | Thu Aug 4, 2011 3:34pm EDT

(Reuters) - Bank of New York Mellon Corp said it is being overwhelmed with deposits from investors fleeing risky markets, and said it will begin charging for above-average deposits.
The bank said this week it is unable to invest the "sudden significant" deposit increases because of their "transient nature," but it is concerned the deposits will weaken its capital ratios and raise its deposit insurance premiums.
If customers' balances are more than 10 percent above their averages in June, BNY Mellon said it will pass along some of its costs by charging the fee.
The fee reflects how global economic uncertainty spurred investors to pull assets from risky assets, creating difficulty in some stock and bond markets....


http://www.reuters.com/article/2011/...7735JW20110804

[lektrode]

Re: Mellon Bank Discourages Cash from Markets

unbelieveable...
so i guess this means no more 'free' gifts for opening savings accts, eh?
just look at what the bernank and ZIRPland has done for us, oh yeah baybee, happy daze (for the banksters) are here again!

can hardly wait for the next sunday evening announcement - think it'll be this weekend, or what?

BNY Mellon imposes fee on rapidly growing deposits





By Richard Leong and Emily Flitter
NEW YORK | Thu Aug 4, 2011 3:34pm EDT

(Reuters) - Bank of New York Mellon Corp said it is being overwhelmed with deposits from investors fleeing risky markets, and said it will begin charging for above-average deposits.
The bank said this week it is unable to invest the "sudden significant" deposit increases because of their "transient nature," but it is concerned the deposits will weaken its capital ratios and raise its deposit insurance premiums.
If customers' balances are more than 10 percent above their averages in June, BNY Mellon said it will pass along some of its costs by charging the fee.
The fee reflects how global economic uncertainty spurred investors to pull assets from risky assets, creating difficulty in some stock and bond markets....


http://www.reuters.com/article/2011/...7735JW20110804

[Chomsky]

Re: Mellon Bank Discourages Cash from Markets

http://www.zerohedge.com/news/short-...s-fee-deposits

[cjppjc]

Re: Mellon Bank Discourages Cash from Markets

Mellon will have to pay FDIC insurance fees on this hot money. It will leave the bank fast I assume.

[mmr]

Re: Mellon Bank Discourages Cash from Markets

Yes, especially if there's a -0.13% yield. The money will just move to other banks until they impose similar fees or will be invested in short-term treasury bills, for which rates may be driven down to -0.13% as well.

It's somewhat ironic that after the liquidity crisis of 2008, the best way to hurt a TBTF bank today is to deposit as much money with them as possible.

[Chris Coles]

Re: Mellon Bank Discourages Cash from Markets

What is really interesting is the belief that by passing $US to a strong bank, the value will somehow be protected. That flies in the face of every aspect of the failure of the US to retain value in their currency and illustrates how uneducated the average US citizen is with regard to the underlying financial problems in the US economy.

[zoog]

Re: Mellon Bank Discourages Cash from Markets

Yes, especially if there's a -0.13% yield. The money will just move to other banks until they impose similar fees or will be invested in short-term treasury bills, for which rates may be driven down to -0.13% as well.

It's somewhat ironic that after the liquidity crisis of 2008, the best way to hurt a TBTF bank today is to deposit as much money with them as possible.

It's just funny that a bank doesn't want people to deposit money. I understand why, but it still sounds absurd.

[mmr]

Re: Mellon Bank Discourages Cash from Markets

I would imagine that most of these deposits are not from individuals but from corporations or major investors who have no choice but to hold dollars, and are just putting them somewhere for short-term liquidity (for example, a manufacturer that received payment on a sale today and wants to use that cash to cover its payroll next week.)

The short-term, liquid investment options for businesses are pretty much limited to the following:

- Deposits with banks (US or foreign)
- Buy a short-term security like a treasury bill or commercial paper
- Invest in a money market fund (basically delegating the investment decision to the fund manager)

In the pre-2008 environment, corporate treasurers who make such investment decisions were able to focus more on maximizing return on cash than ensuring return of cash. That situation has reversed.

With the recent headlines about money market funds depositing cash with European banks (which, for technical reasons, were able to offer slightly higher yields), companies have anecdotally been pulling cash out of money market funds. This isn't so much a ringing endorsement of the banking system or the US dollar as a case of investors selecting the least risky of an unattractive set of options.

That being said, the commentary during the debt ceiling discussion about investors selling treasury bills to put money in FDIC-insured accounts was entertaining, given that the US Treasury is the ultimate guarantor for the FDIC.

[Chris Coles]

Re: Mellon Bank Discourages Cash from Markets

Then why not open a BullionVault account and place the money directly into Gold?

[cjppjc]

Re: Mellon Bank Discourages Cash from Markets

Then why not open a BullionVault account and place the money directly into Gold?

Because for one thing I assume when they go to cash like that it is to reevaluate, and not make a bet on the near term price of gold

[Chris Coles]

Re: Mellon Bank Discourages Cash from Markets

Because for one thing I assume when they go to cash like that it is to reevaluate, and not make a bet on the near term price of gold

But that leaves me wondering when everyone will go back to understanding that the safest place to keep your money is in Gold.

[mmr]

Re: Mellon Bank Discourages Cash from Markets

For savings that won't be needed for years, you're absolutely right, but these depositors are thinking on a much shorter time horizon. For example, for a company that has to pay a specific cash obligation in dollars on a particular near-term date, holding gold may be too risky due to the volatility.

(If a company knows that it has to pay a $1 million tax bill next Friday, and invests the $1 million in gold rather than treasury bills, there's a risk that gold prices will go down 10% in a week, leaving the company short of cash and making the IRS very angry. Over a very short horizon, it's unlikely that the treasury bill will return less than $1 for each $1 invested. Over the long term, of course, that dollar won't buy you very much.)

[cjppjc]

Re: Mellon Bank Discourages Cash from Markets

But that leaves me wondering when everyone will go back to understanding that the safest place to keep your money is in Gold.

First, I don't know much about BullionVault, and wonder if they can handle the kinds of money that comes flying in at times like these. Second, prior to Mellon Bank charging interest, there is a greater risk of losing capital at BullionVault then in Mellon.

[Jam]

Re: Mellon Bank Discourages Cash from Markets

I have had an account with WSFS, which was advertised as 'totally free checking' when I opened it a couple of years ago. I kept it as a backup for my regular checking account at a different bank. I had ~$1k there, earning 0.0% interest. Last week I got a notice that they are charging me $8 'service fee' for the privilege of keeping my money there because my account was 'inactive.' An immediate question arises: what kind of 'service' do they provide if there is no activity? So, I went to the bank, pulled the cash, and closed the account.
I guess this is the result of the zero-interest-rate policy: everybody is under pressure to show x% return, but the usual sources are not paying interest. So, they resort to getting their return in other ways.

[mmr]

Re: Mellon Bank Discourages Cash from Markets

If you think that some banks are intentionally cutting back even more on customer service to drive you away, you may be right.

In Cautious Times, Banks Flooded With Cash

Bankers have an odd-sounding problem these days: they are awash in cash.

Droves of consumers and businesses unnerved by the lurching markets have been taking their money out of risky investments and socking it away in bank accounts, where it does little to stimulate the economy.

Though financial institutions are not yet turning away customers at the door, they are trying to discourage some depositors from parking that cash with them. With fewer attractive lending and investment options for that money, it is harder for the banks to turn it around for a healthy profit.

In August, Bank of New York Mellon warned that it would impose a 0.13 percentage point fee on the deposits of certain clients who were moving huge piles of cash in and out of their accounts.

Others are finding more subtle ways to stem the flow. Besides paying next to nothing on consumer checking accounts and certificates of deposit, some giants — like JPMorgan Chase, U.S. Bancorp and Wells Fargo — are passing along part of the cost of federal deposit insurance to some of their small-business customers.

Even some community banks, vaunted for their little-guy orientation, no longer seem to mind if you take your money somewhere else.

“We just don’t need it anymore,” said Don Sturm, the owner of American National Bank and Premier Bank, community lenders with 43 branches in Colorado and three other states. “If you had more money than you knew what to do with, would you want more?”

Like Mr. Sturm’s banks, Hyde Park Savings Bank, a community lender in the Boston suburbs, lowered its C.D. rates this spring to encourage less-profitable customers to move on. As a result, Hyde Park shed about 1,000 of its 35,000 C.D. holders, preferring customers who also had a checking or savings account.

So far, banks have reported a modest increase in lending this year. Critics, however, fault the industry for being too tight-fisted — no matter how much bankers insist that demand is anemic, especially from the most creditworthy borrowers....

In fact, the pressure on spreads poses an even greater threat to the banks’ earnings than the new financial regulations. Oliver Wyman, a financial services consulting firm, estimates that the industry’s deposit revenue will shrink by more than $55 billion from its precrisis levels, dwarfing the roughly $15 billion in lost fee income from debit card and overdraft restrictions.

In the meantime, retail branch economics are being upended, forcing banks to close branches and lay off thousands of employees. “If you can’t put the money to work, what are you going to do with it?” Chris Kotowski, a bank analyst with Oppenheimer, asked. “You’re sending monthly statements, you’ve got people at branches. All that stuff costs money.”....

Conservative even by banker standards, Mr. Sturm said he had pared his banks’ portfolio of loans by more than two-thirds to some $500 million over the last few years because of concerns that the loans could go bad. He scaled back new mortgages to home buyers in Aspen, Telluride and other luxury Colorado ski resort areas. And he said fewer businesses in Denver and Colorado Springs were seeking financing.

Yet, his banks remain flush with over $1.55 billion of deposits. He would like to make more loans so that he could earn more money, he said, but there are too few of what he calls “quality borrowers,” whose credit record, income and assets suggest they would reliably pay him back.

His next option is to invest those deposits in low-risk securities, like mortgage bonds backed by Fannie Mae and Freddie Mac, which in recent years paid as much as 3.75 percent. Today, they are paying, on average, less than 1.15 percent [and will go lower if the government is successful in encouraging mortgage borrowers to refinance]. Deposits parked at the Fed fetch a mere 0.25 percent. Federal deposit insurance premiums and other account maintenance costs cut deeply into his returns.

As a result, Mr. Sturm is keeping savings rates below 0.15 percent and setting C.D. rates below those of nearby competitors. “I don’t want to take deposits in and lose money,” he said.

Of course, if the banks think they have a problem now, just wait until QE3/4/etc.