LITTLE ROCK — Clients of the largest U.S. banks withdrew funds this month at the fastest weekly pace since the Sept. 11, 2001, terrorist attacks as a deposit insurance program ended and customers tapped into their year-end cash hoards.
Net withdrawals at the 25 largest U.S. lenders totaled$114.1 billion in the week that ended Jan. 9, pushing deposits down to $5.37 trillion, according to Federal Reserve data released last week. The magnitude of the drop was second only to the decline after the 9/11 attacks, according to Jason Goldberg, a New York-based analyst at Barclays PLC.
Customers may be moving money no longer insured by the U.S., drawing down year-end balances and investing in advancing equity markets. A Federal Deposit Insurance Corp. backstop, the Transaction Account Guarantee program, ended last month, prompting some analysts, investors and trade organizations to predict it could drive funds from the banking system.
“What you are seeing now is probably [Transaction Account Guarantee program] money,” said Subadra Rajappa, a fixed-income strategist at New York-based Morgan Stanley. “Some of the banks’ corporate customers have said they were going to take the money out” if the program expired, she said.
The transaction-account protections were introduced in the wake of the 2008 credit crisis and had guaranteed about $1.5 trillion in non-interest-bearing accounts above the FDIC’s general limit of $250,000. The program expired Dec. 31.
Deposits closed the year at about $5.4 trillion, the highest month-end total in 2012 and more than $500 billion higher than at the end of 2011, according to Fed data.
Industry groups such as the American Bankers Association and Independent Community Bankers of America had sought an extension for the Transaction Account Guarantee program to keep accounts from being moved.
“We knew that fund managers would re-evaluate where they want to keep their money - in a non-interest-bearing account, another account at the bank or in other investments,” said James Chessen, chief economist at the ABA. “If it continues there will be reason to be concerned.”
Total money-market-fund assets climbed $70 billion in the two weeks ended Jan. 8 to $2.7 trillion, according to money-fund research firm iMoneyNet in Westborough, Mass. Assets fell to $2.69 trillion in the week ended Jan.15.
Some of the bank-deposit moves may be year-end balance- sheet management by corporate customers, according to Chessen and strategists including Alex Roever at JPMorgan Chase & Co. and Bank of America Corp.’s Brian Smedley. Rajappa said it’s too early to say for sure what caused the drain of deposits.
The 25 largest banks lost almost $53 billion of deposits once seasonal variations are taken into account, according to the Fed data released Friday J. That shows some of the decline is tied to “calendar-related effects,” Roever said.
“You see a run-up in deposits at year-end and then a draw-down after the start of the year,” he said. The cash isn’t going into investments one would expect if it were coming from FDIC-insured accounts, such as Treasury or government-related money market funds, he said.
“If people were shifting out of bank deposits and looking for a government-type return we’d see more growth in Treasury funds,” he said. “It doesn’t seem to be happening.”
Treasurys had declined 0.31 percent this month through Tuesday, Bank of America Merrill Lynch data show.
The outflow follows a year in which total deposits from all sources and regions surged as much as 8 percent at the nation’s five biggest lenders, with the fastest pace set by San Francisco-based Wells Fargo & Co. and Minneapolis-based U.S. Bancorp. Wells Fargo had $945.7 billion in core deposits at year-end. U.S. Bancorp reported $249.2 billion of deposits.
JPMorgan, ranked first by deposits, reported a 6 percent rise for 2012 to $1.19 trillion. Bank of America, ranked second by assets and based in Charlotte, N.C., saw deposits rise 7 percent to $1.11 trillion, the same pace as New York based Citigroup Inc., with $930.6 billion at year-end.
For the largest lenders, the decline in deposits this year may be welcomed, Chessen said. An increase coupled with weak loan demand means banks must purchase lower yielding securities, driving down profit margins, he said.
“The bigger banks have to pay FDIC insurance on these deposits plus some of their capital and leverage ratios are adversely impacted,” Rajappa said. “Many of the banks don’t want these.”
Business, Pages 27 on 01/24/2013