Bank of New York Mellon Corp. said Thursday that it will charge its customers a fee to hold cash deposits over $50 million.
The bank said it has seen such a large increase in deposits over the last month that it will charge a 0.13 percent fee to clients with "extraordinary high deposit levels." Bank of New York Mellon, which has $23.6 trillion in client assets under its custody, said customers have moved money to cash as a safe haven in the past month as investments like stocks and bonds have become increasingly volatile.
The bank's customers are mainly large pension funds and money market funds. The bank collects dividends on stocks and holds cash deposits, among other things, on behalf of such large investment funds.
"This is a historic precedent in the U.S. banking system," said Dan Geller, Executive Vice President at Market Rates Insight, a firm that analyses bank pricing.
Normally, banks pay interest to customers for deposits. But with short-term interest rates near zero, and increased FDIC insurance premiums on deposits, it hurts banks when they hold large amounts of cash on their balance sheets. Deposits are considered a liability because they can be withdrawn at any time. When liabilities go up, banks pay more for FDIC deposit insurance.
Geller believes that the fee on deposits could soon trickle down to consumer deposits too. He said the same economic conditions and nervousness are impacting the American people as managers of pension funds.
"At some point, the safety and security of an insured cash deposit becomes so appealing that people will be willing to pay a small premium for that," said Geller. (more)
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