Wall Street Story: U.S. Banks Withdraw Credit Despite Huge Deposit Increase
[PBG]
Sept. 7 (EIRNS) — It’s past time to break up the Wall Street megabanks, which are not only harboring huge derivatives and securities debt bubbles, but withdrawing credit from the U.S. economy even as the Federal Reserve is pumping them full of liquidity and deposits. This is typical of the biggest City of London/Hong Kong banks as well, and also in evidence in the shaky banking system of another major power, India. The Federal Reserve has acted as the dollar liquidity pump for financial markets throughout the trans-Atlantic, South America, and parts of Asia since the start of March.
Deposits in the entire U.S. banking system have spiked in an extraordinary manner as the Federal Reserve has inundated world markets with newly printed dollars, “to support them.” Total deposits as of Aug. 26 were $15.625 trillion, grown from $12.836 trillion in July 2019; that’s $2.791 trillion in new deposits in a year’s time. Some $2.247 trillion of that extraordinary deposit growth has occurred since the beginning of March when Federal Reserve quantitative easing exploded.
But over the months since March, “loans and leases in bank credit” have fallen from $10.800 trillion to $10.580 trillion; within that, commercial and industrial loans have dropped from $3.040 trillion to $2.785 trillion outstanding. No need to wonder where all that new cash liquidity is going: So-called bank credit in the form of securities is up by $700 billion, from $3.679 trillion a year ago to $4.375 trillion; and real estate loans are up by another $175 billion. Cash assets have leaped up from $1.664 trillion to $2.864 trillion.
At this point, the securities holdings of the U.S. banks are 30% of their entire “bank credit” outstanding; real estate loans are an additional 32%. And so pronounced has been the shift between business credit withdrawn, and deposits hugely grown, that the banks are now in the very unusual situation where their total “credit” outstanding of all kinds, is 5% less than their deposits alone, not even including their capital and reserves.
This unsavory situation is not, in fact, a story of the 5,000 U.S. banks as a whole, but rather of the half-dozen or so Wall Street “universal banking” giants which have two-thirds of all the deposits and assets in the entire banking system. These megabanks are 15% bigger yet again than they were a year ago, hold securities as far more than 30% of their assets, and recently have been making all their profits trading them. While their “commercial bank” units are receiving this big deposit flow courtesy of the Fed, it is clear what kind of assets Wall Street is putting them into.
As their aversion to the Payroll Protection Program showed glaringly, these Wall Street giants are closing off the credit channel to America’s real economy, in the midst of economic crisis and mass unemployment. Even as new national credit institutions are established with a charter commitment to pursue the public purposes of the United States and general welfare of its people, these megabanks must be broken up by re-enacting and enforcing the Glass-Steagall Act. Not only are they positioned to waste new currency as it is issued for those purposes; they are a ticking time bomb, despite all their momentary liquidity, to crash in a securities/derivatives explosion and drag the economy completely into the pit.
