Banks Seek Relief as More Investors Move to Cash

As more investors move to cash as a defensive move against another possible downturn, U.S. regulators have asked some banks to take more deposits from large investors even if it’s unprofitable. Bloomberg reports lenders in return are seeking relief on insurance premiums and leverage ratios.

“Deposits are flooding into the biggest U.S. banks as customers seek shelter from Europe’s debt crisis and falling stock prices,” according to the news service. “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.”

Bloomberg cites three people familiar with negotiations between regulators and lenders, who say regulators have asked banks to take the deposits anyway, 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 the sources, who said U.S. banks are viewed as places of strength.