Bank Deposits Growing Much Faster than Business Loan Demand

Mar 21, 2023 | Finconomics 101, No Bull Economics

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A more productive America would create a substantially higher demand for business loans, providing banks with better places to invest deposits. Absent that, banks have been parking excess deposits in various forms of government debt that are subject to interest rate risk & in some cases, risky crypto bets. This is causing systematic risk.


Retiring boomers, severe stock market volatility, and a long period of zero interest rates have driven huge growth in bank deposits which can appear to be the best of the worst places to park cash. This trend was exacerbated by the 2020 covid lockdowns & massive government transfer payments that led to even higher deposit levels.

In the meantime, an extended period of economic weakness since the 2008 Great Recession has stymied business formation & economic growth, hurting loan demand. Resultantly, this has fueled massive bank deposit allocations into funding for everything government & into non-productive investments in things like crypto. Notably, the 42 largest publicly traded banks have $7 trillion in aggregated loans on their balance sheets compared to $3.5 trillion in aggregated fixed-income investment securities.

In conclusion, America needs to get back to work – we need to find better ways to invest all this capital slushing around into productive businesses that actually add value to society.

Bank Deposits and Loans Graph
Bank Deposits and Loans Graph
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