Banks don’t need your money

You’ve probably noticed you’re getting next to nothing for giving your money to your local bank, which in turn, could lend it out and get a higher interest rate than what you’re getting. There’s money in the middle-man business.

When the Federal Reserve Board lifted the rate it charges banks to borrow money from nothing to 0.25 percent, many banks quickly passed on the higher rate to people who owe money to the banks on mortgage, home equity, and commercial and consumer loans.

But the savers? They’re getting nothing.

U.S. Bancorp (U.S. Bank) boss Richard Davis’ answer to an Associated Press question today explains why. His bank doesn’t need it.

The value of deposits right now is not high, so if I paid you more for deposits to incentivize you to bring your money here I can’t do anything with it anyway, because I can’t make the loan I want to make.

If a bank decides to go ahead and start using those deposits to make loans, they’re going to have into riskier loans to get higher rewards, going into mid-prime or sub-prime loans.

It might be a good idea if they really know what they’re doing, but as you recall, it’s exactly what got people in trouble last time. Banks started to get greedy and get outside the bounds of good discipline.

We aren’t going incentivize new deposits, but at the same time we won’t lose them, so if there were a pricing war, we’d probably respond to that so that we wouldn’t lose our customers. Deposits are nice to have, but not as critical as they will be one day.

Davis’ logic can be seen in the bottom line. His bank, the nation’s fifth largest, earned almost $6 billion last year, one of the most profitable in the country.