I noticed this article in the New York Times yesterday. The gist of it was that banks literally have too much money and they do not know what to do with it.
Traditionally banks have made money by taking in deposits and lending out those deposits at slightly higher rates. Wells Fargo took in $41.8 billion in cash in the third quarter but of that money just $8.2 billion (less than 20%) was earmarked for new loans. Looks like the traditional banking model is breaking down.
And it is not just the big banks that we are talking about – many of the small regional banks are also swimming in cash. Here is a quote from the owner of a regional bank in Colorado:
“We just don’t need it anymore,” said Don Sturm, the owner of American National Bank and Premier Bank, community lenders with 43 branches in Colorado and three other states. “If you had more money than you knew what to do with, would you want more?”
Sturm went on to say that his bank has reduced their savings account rates below 0.15% and dropped their C.D. rates as well.
No wonder Lending Club and Prosper keep growing so fast. Banks still aren’t lending and they are offering less and less to their depositors. Looks like the perfect storm for p2p lending will continue.