Most people don’t realize that the balances in their savings and checking accounts are the most powerful forces in the economy, but it’s true! When most people think of banking, it seems so simple — they deposit their paycheck, they access that money when they need it, it’s safe, and it’s always there. While that is true, it’s what happens behind the scenes, when they are not using their money, that drives the state and local economy. On any given day, your local bank has idle deposits, and great bankers are carefully lending those deposits so borrowers can put that money to work. Let’s say a bank deploys deposits to make a $1 million loan to a local business. Those depositors still have access to their $1 million, but now there is another $1 million working in the local community — $1 million in deposits is now $2 million in the local economy. When bankers make loans, they are creating money that fuels the state and local economy. This creates additional jobs, opportunities for career growth, amenities and more here in Utah. What happens if the loan isn’t paid back? It doesn’t impact your deposit at all — that loss is covered by the bank’s capital — but the bank is limited in making new loans, and the creation of wealth slows down. The whole economy suffers. But when skilled bankers carefully and consistently make good loans, businesses thrive, the economy and tax base grow, and jobs and wealth are created. The profits from these loans grow the bank’s capital, putting them in a position to make even more loans so more money and wealth can be created for the local economy. This is how the deposits in our local banks are tied to the growth of Utah’s economy and the wealth of its communities. That’s why it is so troubling that state and local governments are putting over $30 billion of their excess cash reserves into investments outside of the state, and in some cases outside the country, rather than depositing those reserves in our local banks. Some government officials believe it is better for them to earn slightly higher interest rates by investing in developments in other states or countries, completely ignoring the wealth creation that comes through doubling that money locally by depositing those funds in a local bank. Retaining even a fraction of those excess reserves in Utah banks would have a significantly positive impact on Utah’s economy. Utah needs to build 35,000 starter homes in the next five years. Along with those starter homes come gas stations, grocery stores, churches, schools, restaurants, warehouses, dental offices, roads and so much more. This is not the time for state and local governments to be sending money across the world in search of higher returns. Local banks can turn that $30 billion into $60 billion, available to meet the needs of our communities. Given the way Utah is growing, we are going to need every one of those deposits. For nearly 50 years, banks have been subject to the Community Reinvestment Act, which requires them to make loans and investments back into the communities where their deposits come from. Isn’t it reasonable to ask those empowered to extract taxes from our local communities, which has led to the $30 billion in excess reserves, to put those reserves back to work in those same communities? In other words, instead of Utahns’ taxes going to provide growth in other countries and states, shouldn’t we keep those funds in Utah to support the growth needs of our state? The Bottom Line BY HOWARD HEADLEE, President and CEO, Utah Bankers Association Utah Banker 4
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