Deposits are flooding into the biggest U.S. banks as customers seek shelter from Europe’s debt crisis and falling stock prices. That forces lenders to raise capital for a growing balance sheet and saddles them with the higher deposit insurance payments. With short-term interest rates so low, it’s hard for financial firms to reinvest the new money profitably.
Regulators have asked banks to take the deposits anyway, three people said, with one lender accepting $100 billion. The regulators want lenders to take the deposits because it improves the stability of the financial system, according to one of the people, who said U.S. banks are viewed as places of strength.
The banks are taking the assets but asking that the associated capital requirements and deposit insurance fees somehow be relaxed or waived. The article is here.
If you are wondering, I do consider this partial evidence for a liquidity trap. But I request consistency. If this is evidence for a liquidity trap, the absence of this development in prior periods has to count as evidence against the existence of a liquidity trap. Furthermore by no means is negative nominal interest on deposits the industry standard, far from it, except perhaps in Switzerland. So we’re still not in a liquidity trap, if one has to give a simple yes or no answer. T-Bills aside, there are plenty of margins at which money holding decisions follow intuitive economic principles.