Wave of Deposit Money Pours Into U.S. Banks. Demand for Loans Lags. –WSJ

U.S. banks are awash with money from depositors, reports David Reilly in Wall Street Journal’s Heard on the Street, while demand for loans lags behind. The Federal Deposit Insurance Corp.’s banking profile shows that net loans amounted to 70% of deposits in the first quarter, the lowest figure since 1984.

As far as problems go, this isn’t the worst to have. Deposit money is still washing over U.S. banks even as loan growth continues to prove elusive.

The result: Net loans equaled just 70% of total deposits in the first quarter, according to the Federal Deposit Insurance Corp.’s quarterly banking profile released Thursday. That is the lowest level since 1984.

With interest rates at rock-bottom levels, this keeps banks’ net interest margins under pressure. And as J.P. Morgan ChaseJPM -0.18% recently showed with its more than $2 billion loss, overly aggressive attempts to invest excess deposits can lead to problems.

Of course, European banks can only look on with envy. There, the fear is depositors are yanking money from institutions in countries like Greece rather than piling it up.

Total deposits at U.S.-chartered commercial banks and savings institutions rose in the first quarter by about $75 billion, to $10.26 trillion, according to the FDIC. While taking that number to a new high, a roughly $50 billion increase in domestic deposits was a far cry from the more than $200 billion gains seen in each of the previous three quarters.

And a drop-off in one type of deposit sounds a cautionary note. For more than a year, the bulk of deposit growth has come from a sharp increase in noninterest-bearing deposits. These are typically from companies parking cash that, under a special program, receive unlimited deposit insurance until the end of this year.

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