U.S. Bancorp Sees Deposit Flood as Treasury Default Looms

Customers have moved billions of dollars to cash in case U.S. lawmakers can’t strike a deal in time to avert a default on Treasury securities, according to U.S. Bancorp (USB), the nation’s biggest regional lender.

“We are seeing a growth of deposits in the billions of dollars,” said U.S. Bancorp Chief Financial Officer Andrew Cecere in a telephone interview today. “Clients, particularly institutional clients, are putting excess cash in the bank just to make sure that they can maintain the liquidity.”

Across the U.S., investors have pulled $41.6 billion from money-market mutual funds in the past week, according to research firm Crane Data LLC in Westborough, Massachusetts. The exodus comes as regional banks including Minneapolis-based U.S. Bancorp take steps to keep money flowing if Congress lets U.S. borrowing authority lapse.

U.S. Bancorp ranks fifth by deposits among U.S. commercial banks, according to data compiled by Bloomberg. Executives have met daily this week to discuss operational contingency plans, Cecere said. One involves ways to abort computerized payments to holders of Treasury debt starting tomorrow, Cecere said.

“The automation that is in place will need to be overridden,” he said. “We are ready for that to take place.”

Average total deposits increased 2 percent to $252.4 billion in the third quarter from the second quarter, U.S. Bancorp said today in a statement.

Commercial paper borrowers have started to adjust their roll-over dates in case of a disruption, Beth Mooney, chief executive officer of Cleveland-based KeyCorp (KEY), said in a telephone interview today.

Staying Liquid

“The places where you need to watch is, for any business, you need to be liquid,” Mooney said. “We are all in the camp that lawmakers will do the right thing and will not put us in a position to default on our debt.”

The nation’s largest banks also adjusted their holdings, with Citigroup Inc. (C) telling investors this week it doesn’t own Treasury securities that mature in October and that it holds few with terms ending before Nov. 16. Morgan Stanley Investment Management told clients its money-market funds aren’t holding Treasuries that mature in the next month. Fidelity Investments and JPMorgan Chase & Co. (JPM), the biggest providers of U.S. money-market mutual funds, said they made similar changes.

To contact the reporter on this story: Elizabeth Dexheimer in New York at edexheimer@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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