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Fitch: No Big Hit to U.S. Bank Liquidity When QE Tapering Begins
August 8, 2013 / 1:47 PM / 4 years ago

Fitch: No Big Hit to U.S. Bank Liquidity When QE Tapering Begins

(The following statement was released by the rating agency) CHICAGO, August 08 (Fitch) The much anticipated tapering of Federal Reserve bond purchases will not have a significant negative impact on U.S. banks' liquidity or on the broad availability of credit in the banking system, according to Fitch Ratings. Historically high cash holdings and excess deposit levels will prevent a gradual change in the money supply from eroding banks' funding profiles or lending capacity. The Fed's four-year QE program has pushed bank excess deposit levels dramatically higher as loan growth has stalled and short-term rates have remained near historic lows since the financial crisis. As of the end of the second quarter, aggregate U.S. bank deposits exceeded loans by $2.15 trillion. Excess deposits have largely been held on bank balance sheets in the form of cash, creating substantial liquidity buffers as economic growth has remained tepid and growth in loan portfolios has stagnated. Cash balances totaled $2.2 trillion (16% of total commercial bank assets) as of July 31. This compares with $388 billion, or 3.5% of total banking assets, at the end of third-quarter 2008 (prior to the start of QE1). We believe the largest impact of QE tapering and the eventual rise in short-term rates will be felt by high loan-to-deposit banks, as well as banks dependent on online deposits for funding. Still, for most larger institutions, deposit pricing will remain generally inelastic, as excess liquidity will keep a near-term lid on funding costs. For a detailed analysis of U.S. banks' current liquidity positions and deposit funding profiles, as well as a review of possible implications of QE tapering, see the Fitch special report "U.S. Banks: Liquidity and Deposit Funding," dated Aug. 8, 2013 at Contact: Jaymin Berg Director Financial Institutions +1-212-908-0368 Bill Warlick Senior Director Fitch Wire +1-312-368-3141 Fitch, Inc. 70 W. Madison Chicago, IL 60602 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: U.S. Banks: Liquidity and Deposit Funding here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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