Traditionally banks have made money by taking in deposits and lending out those deposits at slightly higher rates. Wells Fargo took in $41.8 billion in cash in the third quarter but of that money just $8.2 billion (less than 20%) was earmarked for new loans. Looks like the traditional banking model is breaking down.
And it is not just the big banks that we are talking about – many of the small regional banks are also swimming in cash. Here is a quote from the owner of a regional bank in Colorado:
“We just don’t need it anymore,” said Don Sturm, the owner of American National Bank and Premier Bank, community lenders with 43 branches in Colorado and three other states. “If you had more money than you knew what to do with, would you want more?”
Sturm went on to say that his bank has reduced their savings account rates below 0.15% and dropped their C.D. rates as well.
No wonder Lending Club and Prosper keep growing so fast. Banks still aren’t lending and they are offering less and less to their depositors. Looks like the perfect storm for p2p lending will continue.
Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.