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Archive for December 22nd, 2008

From Tony Crescenzi’s blog, via CNBC:

In Friday’s release, cash balances held by commercial banks topped $1 trillion for the first time, reflecting cash balances held at the Fed. Pre-Lehman, cash balances tended to hover around $300 billion, with an annual growth rate of less than 1% per year. The Federal Reserve’s curse on cash, hexed as it was last week with the Federal Reserve’s Zero Interest Rate Policy (ZIRP), will eventually pressure banks to use the cash, as net interest margins on loans are far more attractive than the return on cash.

A good point. Banks won’t be earning there way out of this mess by having their money sit at the Federal Reserve, so one has to think that 2009 will be a big year for lending – albeit there is increasing risk of default – since that is the obvious way a commercial bank earns money (opening savings accounts and making loans). Of course some banks have investment arms, but we know what can happen if we rely too heavily on those for profits…

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