JPMorgan Chase (NYSE: JPM) continues to hold an outsize position in cash, a strategy it has largely followed since interest rates started to move higher after they quickly dropped to zero at the beginning of the pandemic. This approach was previously doubted by some given the higher interest rate environment, in which the bank could deploy cash into shorter-term bonds yielding more than 4%, which would certainly bolster earnings in the near term. But as the banking system has started to see pressure on liquidity, JPMorgan's choice to hoard cash now looks like a smart strategic move. Here's why.
Toward the end of 2020 through roughly the first half of 2022, banks were awash in deposits thanks to elevated consumer balances due to built-up savings and stimulus, as well as the Federal Reserve's quantitative easing program, where it was buying bonds and injecting trillions of dollars into the economy.
As the economy normalized and interest rates rose, banks have moved to deploy deposits into loans but also into bonds as their yields increased. All banks have done this to some extent, but at the end of 2022, JPMorgan was still holding more cash than its peers.
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JPMorgan Chase Made a Smart Strategic Decision to Hoard Cash. Here's Why