Many thanks to Ben Walsh for putting this chart together for me. What you're seeing is JPMorgan's (NYSE:JPM) excess deposits - the size of the bank's deposit base, minus the amount of its loans - both in absolute terms and as a ratio. Either way, it's going up and to the right.
JPMorgan clearly has a certain amount of control over the amount of deposits it takes in. What you're looking at here isn't entirely a flight-to-quality trade: JPMorgan's total deposits actually fell in the two years following the financial crisis. They were just over $1 trillion at the end of 2008, they dropped to $940 billion at the end of 2009, and then they fell again to $930 billion at the end of 2010.
But then, in 2011, they shot straight back up - and now they're at a record high of $1.13 trillion, with JPMorgan having failed to lend out more than $400 billion of that amount. That's a record not only in absolute terms but also in relative terms: for every dollar that JPMorgan has on deposit, it has managed to lend out just 64 cents.
To put it another way, JPMorgan has $9,900 on deposit per US household - and of that, $3,600 per US household is "excess deposits" which are mostly being farmed off to London rather than being invested in helping US individuals and businesses grow.
The ostensible purpose of JPMorgan's Chief Investment Office is to take the bank's excess deposits and invest them in a way which manages to hedge the rest of the bank's exposures. But if you're spending 57 cents on hedging operations for every dollar you're making in original loans, which is the case here, then something's clearly very wrong. JPMorgan's loan book isn't that risky, or difficult to hedge. And if it is, JPMorgan needs some new loan officers.
The real story here, of course, has nothing to do with the difficulty of hedging JPMorgan's loan exposures. Rather, the hotshot CIO traders in London were managing to get a higher return on their "hedging" operations than the loan officers were getting on their bread-and-butter loans. And so Jamie Dimon started taking in all the deposits he could find, and sending them straight to London, where they could be "hedged" to the tune of billions of dollars a year in profits.
It's easy for JPMorgan to bring in huge amounts of deposits, of course: corporate balance sheets are bloated with cash, and those corporations want to deposit their funds with a too-big-to-fail institution. But if those deposits are being attracted by JPMorgan's implicit government backstop, then it's incumbent upon JPMorgan to lend them out into the US economy, to get it moving again. Rather than sending them off to London to be gambled away by the likes of Bruno Iksil, even as JP Morgan's total loan base remains lower today than it was in 2008.