January 17, 2013

857 Billion Reasons Why Banks Won’t Lend

The 857 billion reasons why the big banks won’t lend.

source: ZeroHedge

Per ZeroHedge, there is $857 Billion in excess cash at the three big banks – JPMorgan Chase, Bank of America and Wells Fargo.

Excess cash = Deposits – Loans.

When the banks can use the excess cash for their proprietary trading (high risk, high returns), they have little incentive to loan it to consumers and businesses (low risk, low returns).

From JPMorgan Chase CIO losses report 
JPMorgan’s businesses take in more in deposits than they make in loans and, as a result, the Firm has excess cash that must be invested to meet future liquidity needs and provide a reasonable return. The primary responsibility of CIO, working with JPMorgan’s Treasury, is to manage this excess cash. CIO is part of the Corporate sector at JPMorgan and, as of December 31, 2011, it had 428 employees, consisting of 140 traders and 288 middle and back office employees. Ms. Drew ran CIO from 2005 until May 2012 and had significant experience in CIO’s core functions.19 Until the end of her tenure, she was viewed by senior Firm management as a highly skilled manager and executive with a strong and detailed command of her business, and someone in whom they had a great deal of confidence.

Tags: why banks won’t lend, why banks won’t loan, jpmorgan cio loss report, big bank excess cash, excess cash at big banks, reasons why banks won’t lend