After 1½ years of federal stimulus payments and extra unemployment benefits, Colorado Springs-area financial institutions are flush with cash — deposits have grown more than $4.5 billion since 2019.
Local bank and credit union deposits surged 33.7% during the two-year period to $18.1 billion, according to reports from the Federal Deposit Insurance Corp. and the National Credit Union Administration.
While the increase is slowing — 14.2% in the year ended June 30, compared with 17.1% during the previous 12 months — the annual gains are the two highest in records starting in 1998.
Deposits in Colorado banks grew even faster in both years — a 14.6% jump to $197.2 billion in the year ended June 30 and a 20.8% surge in the previous year.
State data for credit unions is not yet available for the second quarter, but deposits in Colorado credit unions grew 19.3% in the year ended March 31, according to the National Credit Union Administration.
Much of the deposit growth in the Colorado Springs area was concentrated among the largest financial institutions; the biggest, Ent Credit Union, added nearly $1.4 billion during the two-year period.
M.J. Coon, Ent's chief financial officer, said the credit union "saw a huge influx of funds from stimulus payments."
While Ent has strong loan demand, it isn't putting all of what she calls "surge deposits" into loans and other "non-liquid assets" to avoid being squeezed later when members start spending all of those savings.
"We have plenty of liquidity to meet member withdrawal demands as we have managed our liquidity during this period (and all periods) knowing we have to have the funds available (for) withdrawal on the members’ schedules, not ours," Coon said. "We are watching our members’ deposit behavior closely. We understand some are concerned about the future and reluctant to spend, while others are beginning to spend down their reserves."
The big gain isn't isolated to Colorado Springs or even Colorado — U.S. banks have added nearly $4 trillion in deposits during the two years ended June 30.
The money comes from stimulus checks to most Americans — three rounds totaling $3,200 per person — along with extra, extended and expanded unemployment benefits that expired last week.
Combine that with many people putting that money in their bank accounts since they didn't dine out or travel as much during the COVID-19 pandemic and that explains why financial institutions are sitting on so much cash.
Banks and credit unions typically lend their deposits to businesses to expand and consumers to buy homes, cars and furniture, take vacations and to make other purchases.
But the demand for loans hasn't been nearly as strong; U.S. banks added just $340 billion in loans during the two-year period and pumped the other $3.6 trillion in additional deposits into government securities, which earn a much lower return than loans.
Mark Vitner, a senior economist for banking giant Wells Fargo, estimates Americans have saved about $2.4 trillion more during the past two years than they would have without the extra government cash and during times of normal, non-pandemic spending. .
That extra cash includes student loan payments many Americans didn't make during the pandemic, since such payments weren't required, as well as mortgage and other loan payments that were delayed or forgiven.
"All of the savings is probably weighted more heavily to upper-income individuals because they have more discretionary income that they can either save or spend," Vitner said.
"That means banks are awash in cash, which has held down long-term interest rates since loan demand has not increased nearly as much as deposits," he said. "So banks are buying down long-term government bonds and that has pushed interest rates lower. The big question is when will this party end?"
That answer is uncertain — U.S. consumer confidence has declined in recent weeks as COVID case numbers surged in many states and U.S. airlines have begun to cut flights scheduled for later this year as travelers postpone or cancel vacations and other trips.
Vitner said he also sees evidence that consumers are reluctant to buy homes and cars because prices have risen so quickly and many are concerned inflation might return.
Tatiana Bailey, director of the University of Colorado at Colorado Springs Economic Forum, expects consumers to begin spending soon, especially those who have been receiving the now-ended extra, extended and expanded unemployment benefits.
Those consumers will need to use savings to start paying for housing, transportation and other basic needs until they look for and find a job, which could take a few weeks or a month.
"With this much stimulus abruptly ending, a frothy stock market and the housing market going crazy, there is a lot of moving pieces out there in the economy, especially when it comes to inflation," Bailey said.
"I'm not saying the sky is falling, but the longer COVID is out there, the more new variants will develop and the longer the pandemic will last. All of that will delay the recovery even longer."