Bank of New York Mellon Charging to Hold Customer Cash

The Bank of New York Mellon plans to begin charging a fee for its big custodial customers to park cash at the bank, according to the Wall Street Journal. It is doing this in response to a tidal wave of cash which was deposited at the bank over the last couple of months in the face of a slowing economy and the potential debt crisis. Because of the velocity and size of the deposits, the bank has not been able to invest the money. In addition, the bank expects that some of the cash will be withdrawn.

"Past history shows that once the storm passes, these deposits quickly return to the markets," BNY Mellon said. It cited the U.S. debt ceiling debate and the Greek debt crisis as having spurred clients to deposit more cash.

Bank of New York is the largest custodial bank in the United States. The bank will charge 0.13% plus an additional amount depending on the one year Treasury rate for accounts holding an average monthly balance of $50 million per client relationship.

So, essentially depositors are earning a -.13% just to put money in the bank. Is this analogous to consumer banking? Not exactly but the general dynamics are the same. Banks are awash in record amounts of cash as consumers shun the stock market. In addition, they are having trouble lending the money via mortgages, credit cards, etc. as lending standards have tightened and housing demand has dropped. With so much cash available and so little to do with it, banks have little incentive to inrease rates. Many checking accounts already pay 0% and average savings accounts are paying near 0.50% (although top savings account rates are near 1%). If the country dips back into a double dip recession, as seems possible, we could see savings rates dropping even further and banks continuing to raise fees for customers to park money and utilize their services.