In 2020, there has been an unprecedented surge in cash deposits into US banks. According to the research data analyzed and published by ComprarAcciones.com, the personal savings rate as of July 20, 2020 was 17.8%. Comparatively, the July 2019 rate was only 7%.
Prior to February 2020, the last time the rate went above 8% was in March 2019. From January 2020, the rate shot up from 7.6% all the way to a high of 33.7% in April. Though it has been on a gradual downtrend since then, it is still way above the 2019 monthly average of 7.5%.
It is noteworthy that in the month of April 2020 alone, deposits into US banks grew by a massive $865 billion. The figure for this single month was higher than the previous record for a whole year.
Total US bank deposits for Q1 2020 amounted to $15.78 trillion according to YCharts. That was an increase of 8.54% from $14.54 trillion in the previous quarter and a year-on-year (YoY) growth of 13.29% from $13.93 trillion in Q1 2019.
According to data from the Federal Deposit Insurance Corporation (FDIC), there was a surge of more than $2 trillion in deposits during the period since Coronavirus became a pandemic. At the end of February, banks held $13.3 trillion in deposit accounts. During the week ending June 10, 2020, the figure had grown to $15.47 trillion.
JP Morgan Chase Grows by 18% in Total Deposits, Citigroup 11% and BAC 10%
An interesting bit to note is that deposit gains were not distributed across the board. Rather, they were concentrated at the very top of the banking industry. Data from the FDIC shows that more than two-thirds of the gains flowed into the top 25 banks.
Notably, the growth was concentrated at the very top of the industry. JP Morgan Chase, Bank of America and Citigroup, the 3 largest US banks by assets, reported higher growth than the rest of the industry.
JP Morgan Chase reported the highest growth in total deposits from Q4 2019 and Q1 2020, at 18% while Citigroup came in second at 11%. Bank of America followed closely behind at 10%. In contrast, the fourth-ranking bank, Wells Fargo, recorded a mere 4% growth in deposits. Similarly, the industry’s total growth was 4%.
As a result of this remarkable growth, the top 5 largest banks by assets had over $7 trillion in deposits by the end of the Q1 2020. JP Morgan Chase held $2.05 trillion in deposits while Bank of America had $1.82 trillion. Wells Fargo came in third with $1.50 trillion, Citigroup fourth with $1.24 trillion and U.S. Bancorp was fifth with $425.28 billion in deposits.
However, the increase in deposits was not matched by a growth in profitability for these top banks. According to data from Marketwatch, JP Morgan stock was down -28.3% by the end of H1 2020. As of September 25, 2020, it had dropped further to -33.53% YTD.
Similarly, Bank of America stock is down by -33.73% YTD, Citigroup at -47.19%, Wells Fargo at56.65% and U.S. Bancorp at -41.42% as of the end of September 2020.
Personal Income Increases by 10.5% in April 2020
The reasons for the astounding surge in deposits in H1 2020 are all linked to the pandemic in one way or another. For starters, uncertainty about the future led decision-makers in corporate institutions as well as households to hoard cash.
The Federal Reserve initiated a massive bond-buying program, funds that went to investment custodians. Not surprisingly, JP Morgan Chase and Citigroup have some of the largest custody divisions in the industry.
At the same time, the government released money in various forms to support the country amid the outbreak. The efforts included direct checks to households, loans to SMEs and expansions in unemployment benefits. A case in point was the $660 billion released for the Paycheck Protection Program, which first ended up in bank accounts.
According to data from the Bureau of Economic Analysis (BEA), there was an increase of 10.5% in personal income in April 2020. Part of the reason for this was the $1,200 stimulus package for individuals whose annual income was below $7,500. The US Treasury reported making over 159 million payments totaling more than $267 billion in a period of less than two months.
As the level of economic recovery payments dropped in subsequent months, so did the increase in personal income. BEA data points to a drop of -4.2% in May and -1.1% in June 2020.