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For now, only “large” customers will have to pay to store their money. But as banks discover a new source of revenue, will it really stop there?

big banks fees on deposits

From Filip Karinja

J.P. Morgan, America’s largest lender, has just announced that it will start charging fees on deposits from some of its larger clients.

Citing that new rules and regulations have made holding some deposits too costly, the stated intention from the financial behemoth is to reduce certain deposits by up to $100 billion by the end of this year.

What are these new rules that are forcing J.P. Morgan to make these changes? Since the financial crisis in 2008, the Federal Reserve has moved to strengthen the liquidity positions of large financial institutions, with the central bank mandating that banks hold “high quality, liquid assets (HQLA) such as central bank reserves and government and corporate debt that can be converted easily and quickly into cash.”

This means that any deposits that are deemed as nonoperational – meaning those not used in daily business or banking activities – to be placed in these HQLAs. Ultimately, banks are going to be placing large deposits at the Fed.

With interest rates currently standing at a measly 0.25%, loans earn little to nothing for the bank. Now with these new rules, banks face a new hurdle, as they can’t lend out these “nonoperational deposits” over and over again.

Big banks rely on loaning out money; it’s how they make their billions. With this capability now restricted, they’re turning to this latest tactic of charging some customers to store their money with them.

So far, only J.P. Morgan has taken this seemingly drastic move. But the lingering question is an obvious one: How long until other banks follow suit? And how long until these banks change the parameters and start charging mid-level clients on their deposits, and then eventually everyday clients??

A few years back, all of this may have sounded far-fetched, but with the European Central Bank (ECB) sending interest rates into negative territory last year and charging clients for deposits, a new precedent has been set for this scenario to occur elsewhere.

As these tides begin to shift, many are rethinking their relationship with their banks, and what real money actually is.

Do you really want to pay for the “privilege” of allowing a bank to keep your fiat wealth stored on a server at a bank?

Should banks start charging you on your deposits, what are you going to do?


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photo credit: IMG_9989 via photopin (license)