JPMorgan Plans To Raise Deposit Rates For Most Large Clients: What It Means

JPMorgan Chase & Co. JPM is planning to raise deposit rates for most of its larger clients beginning January, according to CNBC.

Shares of JPMorgan have seen upticks lately, and were recently seen trading up 1.26 percent at $67.22.

With the decision, JPMorgan would become one of the first financial institutions to raise deposit rates since the Federal Reserve's rate hike. Sources told CNBC that the interest rates would rise on operating deposits held in dollars. The total was not specified.

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Expectations

The banking giant's decision to increase deposit rates will benefit most of the larger institutional clients.

The new rates are expected to be applied to operating deposits. For banks, operating deposits are known to be more attractive versus applying non-operational deposits as non-operational deposits are considered more of a risk.

JPMorgan's deposit rate will not affect its existing clients who already hold deposits. The new regulations are set to ensure that banks are required to hold large amount of capital reserves for deposits.

The rates are estimated to upsurge on a dollar denominated deposit account. Raising only the prime rate will allow banks more room to rebuild a key margin.

Backdrop Of The Change

For many years, an easy interest rate policy had been known to hurt banks' net interest margins. The net interest margins are what distinguishes between income generated from interest on loans, other investments and interest paid to depositors.

The Federal Reserve voted earlier in December to increase its benchmark federal funds rate for the first time in nearly a decade. JPMorgan, the largest U.S. bank by assets, raised its prime rate, a benchmark for many loans, after the central bank's decision.

JPMorgan is the largest financial services and multinational bank in the United States, controlling $2.59 trillion worth assets.

Image Credit: Joe Mabel [CC BY-SA 3.0], via Wikimedia Commons