credit crunch

Bank deposits soared in fourth quarter

February 7, 2013: 1:52 PM ET

As the fiscal cliff loomed, companies and individuals stashed cash into plain vanilla accounts.

chart-bank-deposits-2_blog

Quarterly change in U.S. bank account balances.

FORTUNE -- There are still signs of nervousness about the market and the economy.

A near record $312 billion poured into bank accounts in the fourth quarter of 2012. That was roughly three times the average jump in those accounts in each of the prior three quarters. It was also likely the second largest quarterly increase in deposits ever, following only the fourth quarter of 2008, when $319 billion flowed into bank accounts.

But back then, we were at the height of the financial crisis -- a time when you would expect money to be rushing into relatively safe accounts. Recently, most signs have pointed to rising optimism about the economy. The Dow Jones industrial average briefly touched 14,000 earlier this month.

MORE: This year's biggest economic losers

"Deposits went nuts," says Bill Moreland of bank research firm Bankregdata.com. "Where is all this money coming from?"

One answer is the fiscal cliff. A number of companies moved up dividends, or made special payouts to shareholders, in order to avoid the slated tax hike. But it's not clear why that money didn't go right back into the stock or bond market. There was no tax disadvantage to do so. Indeed, most other data suggests that the fiscal cliff did little to slow the economy or hiring.

The rush of deposits pushed a key lending metric to an all-time low. In the last three months of the year, banks had lent out an average of just 70% of their deposits. Overall, lending did rise in the fourth quarter. But the measure of loans to deposits is generally considered a measure as to whether banks are willing to lend. The metric was regularly above 85% for much of the past decade. It hit a high of 94% in mid-2006.

Banks may have been skeptical of how much of that cash would stick around. Indeed, some of that money may be flowing out. At the end of last year, the government ended its policy -- which had been in place since the financial crisis -- of fully guaranteeing deposits held by corporations in zero-interest transactional accounts. Some have predicted that will cause companies to pull their money out of bank accounts. Flows into short-term money market funds have risen recently. But the data shows that at least during the fourth quarter, balances in corporate transactional accounts continued to rise.

MORE: JPMorgan: Don't blame us for the credit crunch

Banks report deposit and lending numbers, along with other data, to the Federal Reserve Deposit Corp. 30 days after the end of each quarter. But the FDIC doesn't officially release the data for another six weeks after that. Bankregdata compiles the data from the FDIC shortly after its reported by the banks.

According to Bankregdata, profits at the nation's banks dropped slightly at the end of the year compared to the third quarter, but was up significant from the year before. Lending rose by $117 billion, or 2%, in the quarter. The biggest jump was in business loans, which were up $50 billion. Credit card borrowing, which typically jumps at the end of the year, was up nearly $30 billion. Residential mortgage loans rose $10 billion. The one area where lending continued to drop was construction loans, which fell $7 billion, about the same as the quarter before.

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