Editor’s Note: This is disgusting. Anyone who has dealings with this outfit shoudl cease those dealings at once, hopefully forcing this brazen bank into insolvency and eventually out of existence. Of course they’d want a bailout first..
Bank of New York Mellon Corp. on Thursday took the extraordinary step of telling large clients it will charge them to hold cash.
Bank of New York Mellon is preparing to charge some large depositors to hold their cash, in the latest sign of the worries roiling global markets. Liz Rappaport has details.
The unusual move means some U.S. depositors will have to pay to keep big chunks of money in a bank, marking a stark new phase of the long-running global financial crisis.
The shift is also emblematic of the strains plaguing the U.S. economy. Fearful corporations and investors have been socking away cash in their bank accounts rather than put it into even the safest investments.
The giant bank, which specializes in handling funds for financial institutions and corporations, will begin assessing a fee next week on customers that have been flooding the bank with dollars, Bank of New York told clients in a note reviewed by The Wall Street Journal.
The decision won’t affect individual savers, who already are stuck with near zero interest rates as the Federal Reserve keeps rates low to support a soft economy. But it is a glaring sign that corporate executives, bank leaders and money-market fund managers are fleeing from risk and hoarding cash as the recovery threatens to peter out.
A Bank of New York Mellon spokesman said, “the vast majority of clients will not be affected by the proposed fee.”
The Dow Jones Industrial Average plunged 512.76 points Thursday. The one-month Treasury bill traded at a negative yield for the first time since June—signaling that investors are so worried that they are prepared to pay the government to take their money.
The letter said Bank of New York finds its deposits “suddenly and substantially increasing” as investors are in a mass “de-risk” mode. The bank said the decision was driven by the fact that it cannot invest much of the new deposits because clients have the ability to move the funds out at any moment.
The ultra-low interest rates set by the Federal Reserve in an effort to stimulate the anemic recovery have also neutered banks’ ability to reap profits from investing their deposits.
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“I’m not surprised BONY is charging,” said Sheila Bair, who left as chairman of the Federal Deposit Insurance Corp. last month and is now at the Pew Charitable Trusts. “The deposits are transient and given continued economic weakness, there is not a lot it can do with them.”
While other banks haven’t followed Bank of New York in charging depositors, some analysts speculated that rivals might follow suit.
Some corporate executives, meanwhile, took a dim view of the new fee.
“If it’s true, I think it’s atrocious,” Gary Cox, chief financial officer of Champions Life Insurance Co. in Richardson, Texas, told CFO Journal, a news service of The Wall Street Journal. Champions, which has $150 million in assets, has bank accounts with three local Texas firms and J.P. Morgan Chase.
Such a move, he said, “would encourage us to find another bank.”
A spokesman for J.P. Morgan Chase said it has not imposed similar fees.
Over the past two weeks, money-market funds, corporate treasurers and investment houses have pulled money out of securities that mature in more than one day in favor of stashing their cash in bank accounts at Bank of New York and other banks with custodial operations. The accounts don’t earn interest, but have a big attraction: They are insured by the Federal Deposit Insurance Corp.
The fastest-growing asset on bank balance sheets this year is cash. Since the beginning of the year, U.S. bank holdings of cash are up 83%, or $890 billion, to $1.98 trillion. Consumer loans, by contrast, have grown 0.2%, or $1.7 billion. Commercial and industrial loans are up 3.8%, or $46.1 billion.
Bank of New York said that customers that have deposited more than $50 million into their accounts since the end of July will face an annual fee of at least 0.13% of the excess deposits. The fee would rise if the one-month Treasury yield dips below zero, according to the letter sent to customers.
Getty ImagesBank of New York Mellon is preparing to charge some large depositors to hold their cash.
The bank had $162.5 billion in deposits as of March 31.
Holding cash comes at a cost to banks. Bank of New York and others pay fees of about 0.10% to the FDIC to insure their deposits, said people familiar with the matter.
Given the size of recent deposits and the flows in and out of money-market funds, the charges could run into the millions of dollars.
Huge deposit flows pose another problem for banks: They force banks to hold increasing amounts of capital, which they are loath to do because doing so depresses profits—which are already under pressure with a slow economy and rising regulatory demands.
One place banks have turned to put their cash is the Federal Reserve. Since late 2008 it has been paying 0.25% interest on funds banks hold with in reserve with the Fed.
However, banks and economists have speculated that one of the Fed’s options is to reduce or even eliminate that interest payment, hoping to push banks to invest their deposits in the private sector.
The Fed has worried that removing the payment would hurt vulnerable parts of the financial system—namely money-market funds, which would struggle to make profits in a world where interest rates are almost zero.
But with the economy weakening, the Fed is considering all sorts of ways to promote spending, investment and growth.
While financial institutions haven’t rushed to impose commissions, other countries have used negative interest rates to stem a torrent of incoming funds. In 2009, Sweden cut its benchmark interest rate below zero, and in the late 1970s Switzerland’s central bank imposed negative interest rates to slow capital inflows that were driving up the value of the Swiss franc.