Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, April 24, 2017

AI Summary. U.S. health care spending rose 5.8% to $3.2tn, or $9,990 per person, with growth attributed to coverage expansion under the Affordable Care Act alongside stronger growth in private health insurance, hospital care, and physician and clinical services. Health care's share of the U.S. economy climbed to 17.8% from 17.4%.

Centers for Medicare & Medicaid Services Centers for Medicare and Medicaid Services
Date Posted:
Is Database:
Database

US health care spending rose 5.8% to $3.2tn in 2015, driven by the Affordable Care Act’s coverage expansion. Spending per person was $9,990. @CMSGov.

Is health care spending rising as a share of the economy?

Core argument: U.S. health care spending rose 5.8% in 2015 to $3.2tn, or $9,990 per person, driven by the Affordable Care Act's coverage expansion that began in 2014.

In 2015, U.S. health care spending rose by 5.8% to $3.2tn, equating to $9,990 per person, driven by the Affordable Care Act's coverage expansion initiated in 2014. This increase was fueled by stronger growth in private health insurance, hospital care, physician and clinical services, and continued robust growth in Medicaid and retail prescription drug spending. Consequently, the share of the U.S. economy devoted to health care spending climbed to 17.8% in 2015 from 17.4% in 2014. These figures underscore the significant impact of policy changes on national health expenditures and highlight the growing economic burden of health care on the U.S. economy.

Takeaways by Macro Roundup® AI

  1. U.S. health care spending rose 5.8% in 2015 to $3.2tn, or $9,990 per person, driven by the Affordable Care Act's coverage expansion that began in 2014.
  2. Health care spending climbed to 17.8% of the U.S. economy in 2015 from 17.4% in 2014.
  3. The 2015 increase in U.S. health spending was fueled by faster growth in private health insurance, hospital care, and physician and clinical services, alongside continued growth in Medicaid and retail prescription drug spending.

this is from the Centers for Medicare and Medicaid Services, it's how US health care spending is distributed, these numbers are gross (not just Medicare/Medicaid spending) last year available is 2015 (3 page summery is attached) though the embedded pie charts are a useful visualization"...In 2015, U.S. health care spending increased 5.8 percent to reach $3.2 trillion, or $9,990 per person. The coverage expansion that began in 2014 as a result of in the Affordable Care Act continued to have an impact on the growth of health care spending in 2015. Additionally, faster growth in total health care spending in 2015 was driven by stronger growth in spending for private health insurance, hospital care, physician and clinical services, and the continued strong growth in Medicaid and retail prescription drug spending. Lastly, the overall share of the U.S. economy devoted to health care spending was 17.8 percent in 2015, up from 17.4 percent in 2014...."National Health Expenditure Data, Centers for Medicare and Medicaid Services, Accessed April 24, 2017, https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nationalhealthaccountshistorical.html

Historical National Health Expenditure Data: Extended Excerpt Image 1

Historical National Health Expenditure Data: Extended Excerpt Image 2

Tuesday, May 9, 2017

AI Summary. JPMorgan estimates that 60% of the $2.5tn in excess deposits created by quantitative easing could leave banks over the next four to five years, leaving loan growth to outpace deposit growth by $200bn–$300bn annually. It advises midsize banks with under $50bn in assets to consider mergers to secure stable retail deposits.

Matthew Monks Bloomberg
Date Posted:
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Database

JPMorgan advises midsize banks to consider mergers to bolster their deposit bases and remain competitive as the Fed reduces its balance sheet, potentially leading to a significant deposit drain. @MatthewMonks

Should midsize banks merge as excess deposits leave the banking system?

Core argument: JPMorgan estimates that 60% of the $2.5tn in excess deposits created by quantitative easing could exit banks over the next four to five years as the Federal Reserve reduces its $4.5tn balance sheet.

As the Fed reduces its $4.5tn balance sheet, a significant deposit drain is anticipated, potentially impacting midsize banks with assets under $50bn. JPMorgan estimates that 60% of the $2.5tn in excess deposits created by quantitative easing could exit banks over the next 4-5 years. This shift may result in loan growth lagging deposit growth by $200bn-$300bn annually. Midsize banks, lacking the marketing power of larger institutions like JPMorgan, Wells Fargo, and Bank of America, may struggle to attract retail deposits, which are crucial for funding loan growth. Consequently, JPMorgan advises these banks to consider mergers to bolster their deposit bases and remain competitive. The consolidation trend is driven by the need for stable retail deposits, the challenge of organic growth, and the scale required for technology and brand investments.

Takeaways by Macro Roundup® AI

  1. JPMorgan estimates that 60% of the $2.5tn in excess deposits created by quantitative easing could exit banks over the next four to five years as the Federal Reserve reduces its $4.5tn balance sheet.
  2. JPMorgan projects that loan growth could lag deposit growth by $200bn-$300bn annually, leaving midsize banks with assets under $50bn short of the retail deposits needed to fund lending.
  3. JPMorgan advises midsize banks to consider mergers to bolster their deposit bases, since they lack the marketing power of JPMorgan, Wells Fargo and Bank of America and the scale for technology and brand investment.

granted this is FIG bankers literally talking their book but it's an interesting unintended consequences (though I'm sure the FDIC/Fed would prefer more consolidation in retail banking)

"...JPMorgan argues that some midsize U.S. banks -- those with $50 billion in assets or less -- could face a funding problem in coming years as the Fed goes about shrinking its massive balance sheet, according to the 19-page report the New York-based bank has begun sharing with clients....A "deposit is destroyed" if the "Fed does not reinvest," the presentation states....It may also set off a dash for retail deposits, a classification that includes bread-and-butter checking accounts, which banks love because they are especially cheap and stable. Midsize banks will have an especially hard time growing retail deposits by ramping up advertising and investing in branches, according to JPMorgan’s presentation. That’s because they lack the marketing muscle of mega banks such as JPMorgan itself, as well as Wells Fargo & Co., Citigroup Inc., and Bank of America Corp. JPMorgan, like some other banks, offers depositors cash incentives for opening new checking and savings accounts with five-figure balances. About42 percent, or $1.6 trillion, of the new deposits that U.S. banks have amassed since late 2009 have gone to lenders with at least $1 trillion in assets, according to data JPMorgan compiled from regulatory filings and SNL Financial...."

Proxy firm Institutional Shareholders Services Inc. has advised PrivateBancorp stockholders to reject the deal because it undervalues the Chicago-based lender. A shareholder vote is schedule for Friday.

“We have long felt the company needed to improve their funding base to support loan growth,” McEvoy said in the note. “To do so on a standalone basis would be expensive and difficult.”

Selling to CIBC will help PrivateBancorp when interest rates rise, Terry McEvoy, a Stephens Inc. bank analyst, said Monday in a research note to clients.

PrivateBancorp urged investors to vote in favor of its deal with CIBC in a shareholder presentation last month to help “address standalone funding constraints” by giving it access to a large retail deposit base.

Selling to Pinnacle is “an excellent opportunity to really drive some really, serious, dynamic deposit growth to fund this machine over the next several years,” BNC Bancorp Chief Executive Officer Richard Callicutt said in a conference call with analysts in January.

Deposit needs factored into both banks decision’ to seek a partner.

BNC Bancorp

The median for deposits in the form of brokered and listing-service accounts for U.S. banks with at lease $1 billion in assets was 2.5 percent at the end of 2016, according to data from SNL Financial. Those types of funds accounted for more than 20 percent of deposits at BNC Bancorp and PrivateBancorp, according to regulatory filings.

The examples include BNC Bancorp’s $2 billion sale to Pinnacle Financial Partners Inc. and PrivateBancorp Inc.’s roughly $5 billion agreement to sell to Canadian Imperial Bank of Commerce.

A looming push for retail customers may already be spurring dealmaking, JPMorgan says, noting that a handful of bank mergers have involved targets with heavy concentrations of deposits purchased from brokers or acquired through listing services such as QwickRate, both of which are more expensive funding sources than retail accounts.

“The need for retail deposits to fund loan growth, the challenge of organically originating new relationships and the scale required to support technology and brand investments will drive consolidation,” the report states.

Consolidation Driver

Since big banks have the wherewithal to hold onto those gains, smaller ones may have to consider selling or buying rivals to bulk up on retail deposits, JPMorgan argues.

“Large banks are making sizable investments in brand, customer acquisition and technology leading to market share gains,” according to the report.

About 42 percent, or $1.6 trillion, of the new deposits that U.S. banks have amassed since late 2009 have gone to lenders with at least $1 trillion in assets, according to data JPMorgan compiled from regulatory filings and SNL Financial.

Midsize banks will have an especially hard time growing retail deposits by ramping up advertising and investing in branches, according to JPMorgan’s presentation. That’s because they lack the marketing muscle of mega banks such as JPMorgan itself, as well as Wells Fargo & Co., Citigroup Inc., and Bank of America Corp. JPMorgan, like some other banks, offers depositors cash incentives for opening new checking and savings accounts with five-figure balances.

It may also set off a dash for retail deposits, a classification that includes bread-and-butter checking accounts, which banks love because they are especially cheap and stable.

Retail Dash

That could be particularly problematic for banks that rely on deposit products that tend to roll over swiftly, such as brokered accounts bought from third parties, large commercial banking accounts and high-interest savings accounts for wealthy customers.

JPMorgan estimates that a quantitative easing-related deposit-drain could result in loan growth lagging deposit growth by $200 billion to $300 billion a year.

A "deposit is destroyed" if the "Fed does not reinvest," the presentation states.

JPMorgan’s presentation, titled "Core Deposits Strike Back" illustrates how this process will sap bank deposits using the example of a couple who pays off a mortgage that was bundled with other mortgages and sold to the Fed. Right now, when that couple takes that money out of their bank account for that payment, the Fed uses that cash to buy another mortgage bond, recycling it back into the banking system.

Deposit ‘Destroyed’

The Fed is currently holding about $4.5 trillion of securities. The way it will get rid of them is by letting them mature and not buying new ones.

This created some $2.5 trillion in excess bank deposits, according to JPMorgan. It estimates that 60 percent, or $1.5 trillion, of that money will trickle out of banks in the next four to five years if the Fed follows through with recent guidance and begins reversing quantitative easing in December.

The Fed’s bond-buying spree from 2009 to 2014, dubbed quantitative easing, inadvertently left the industry flush with deposits. Investors took money they got selling mortgage-backed bonds and Treasury securities to the Fed and parked it in U.S. retail and commercial bank accounts.

JPMorgan argues that some midsize U.S. banks -- those with $50 billion in assets or less -- could face a funding problem in coming years as the Fed goes about shrinking its massive balance sheet, according to the 19-page report the New York-based bank has begun sharing with clients.

The company’s investment bankers are warning depository clients that they may begin feeling the crunch in December, thanks to a byproduct of how the U.S. Federal Reserve propped up the economy after the financial crisis, according to a copy of a confidential presentation obtained by Bloomberg News and confirmed by a JPMorgan spokesman.

JPMorgan Chase & Co. has some advice for regional banks: A deposit drain is coming, so merge while you can.

JPMorgan Tells Banks to Partner Up as U.S. Deposit Drain Looms

Matthew Monks, "JPMorgan Tells Banks to Partner Up as U.S. Deposit Drain Looms,"Bloomberg, May 8, 2017, https://www.bloomberg.com/news/articles/2017-05-08/jpmorgan-tells-banks-to-partner-up-as-u-s-deposit-drain-looms