Finance, Forex and Investments

Why are checking accounts no longer an important source of funds for commercial banks in the United States?

Public Comments

1. I dont know for sure, but my guess would be consumer financing.
2. It depends on the bank. For some it is still a major source of funds that can be loaned out. However, for most banks, checking account source of funds are not enough to satisfy loan needs and thus look insignificant in the total portfolio.
3. Because most credit is handled electronically via credit cards and direct transfers. The use of checks is steadily declining. Unfortunately, I'm usually in line behind the few remaining check writers at the supermarket checkouts.
4. Because checking accounts have money that will leave the banks sooner tha later son it can not be invested, therefore, it doesn´t count towards investment. That´s why banks always ask you to invest in some way, for them to loan your money while you keep it there maturity.
5. Because most if not all checking accounts are now free. They make some money based on investing a certain amount of the money, before it is transfered to the payee's account. I expect most of a bank's money today, to come from loans. Some banks now handle stock transactions too
6. They are still very important, however, over the last 10-20 years or so funds have been leaving traditional bank checking accounts and going into money market fund accounts that provide better returns, are very liquid and typically allow similar checkwriting features. Most large banks resonded to this trend by organically developing their own brokerage houses or purchased one. Also, bank customers are being more efficient with their cash. The ability to conveniently transfer funds online/ATM/phone, the increase use of credit cards as a payment method, the increase in the popularity of electronic automatic payments, and the availability of overdraft protection products have all lead to customers being more efficient by maintaining smaller relative balances in low or zero interest checking accounts. Checking accounts for banks however are still extremely important as a lead product to gather additional more profitable business from existing clients. Most retail banks track the # of products owned per checking account customer as gauge of how successful their retail sales process is.
7. Because the depositors clearly prefer savings accounts and money market funds. Most recent flow of funds data from the Federal Reserve show that the U.S. household sector holds the following assets (numbers in billions of dollars): Checkable deposits and currency 272.1 Time and savings deposits 5,040.8 Money market fund shares 1,039.9