Bankers tend to frame deposit growth as a validation of the strength of client franchises, and analysts tend to fret over margin-pinching buildups of liquidity.
Whatever the correct story line, money has been flooding into domestic bank accounts again as the latest panic in global markets appears to be channeling savings into the federal safety net.
At an annual rate of 11% in the second quarter, the increase in deposits booked at domestically chartered commercial banks was the largest in more than two years.
One perspective on the extent to which a flight to safety is driving the growth is the relative change in deposits at U.S. branches and agencies of foreign banks and other foreign-related institutions (see charts). Almost all the deposits held by these entities are in large-denomination balances, and much is uninsured.
Outflows from foreign-related institutions were dramatic during the height of the financial crisis, at an annual rate of decline of 62% in the fourth quarter of 2008, and again when the Greek debt crisis first broke into the open, at a 25% rate in the second quarter last year.
In the second quarter this year, deposits at foreign-related institutions actually continued to grow, at a 9% rate, but that was less than the 15% rate in the first quarter, and the increase was outdone by the expansion in deposits at domestically chartered banks for the first time in a year.
Speaking about a $53 billion jump in deposits at JPMorgan Chase & Co. in the second quarter during the company's earnings call, Chief Executive Jamie Dimon said, "I think a little bit was a flight to safety and a little bit was just people managing their own balance sheets."
But while the accumulation of deposits is pressuring JPMorgan Chase's net interest margin in the absence of robust loan growth, Dimon said his focus is on profits and clients. "Even if you have to invest at a very small spread, you probably would do that, right?" he said.
Indeed, domestically chartered banks' cost of funds has
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