Here's a unique problem facing banks: too much cash. The New York Times reports "droves" of customers have been pulling money out of risky investments and stocking it away in banking accounts, and banks don't know what to do with it all.
Financial institutions, both big and small, see this as a problem. The money sitting in accounts does little to stimulate the economy, and with "fewer attractive lending and investment options for that money, it is harder for the banks to turn it around for a healthy profit."
Back in the days of growth and economic prosperity, banks couldn't open new branches and accounts fast enough. They would be quick to take the money and turn it around to finance new businesses, home purchases, and the like.
But nowadays, in a troubled economy, banks set aside less money to finance loans and earn less profit generated from new ones. "Because the Federal Reserve effectively sets the floor off which banks price their lending rates, its decision to lower interest rates to near zero means the banks earn less money on the deposits they lend out," reports New York Times.
It's also become difficult to find "quality borrowers" -- those whose credit, income, and assets suggest they would be reliably paid back. Simply put, banks aren't interested in having more cash lying around because it's becoming too difficult to make a worthwhile profit.
Of course, not all banks are upset by the heavy cash inflows. A few think the growing pile of new money will be worthwhile when the economy improves. And it may improve consumer relations compared to other banks that are finding ways to discourage the new trend, or to at least make a profit from it. For example, "in August, Bank of New York Mellon warned that it would impose a 0.13 percentage point fee on the deposits of certain clients who were moving huge piles of cash in and out of their accounts."
All in all, banking spreads are being squeezed, meaning they are making less money on each dollar they hold.
But this trend isn't concerning too many sophisticated investors. We've found a few examples where institutional investors and insider executives have been snapping up shares of banks -- we list the biggest ones below.
Insiders and hedge funds appear to be optimistic on the outlook of these banks, despite the current environment -- do you agree with their bullishness?
List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)
List compiled by Eben Esterhuizen, CFA:
1. UMB Financial
2. First Financial Bankshares
3. Pacific Capital Bancorp
4. Central Pacific Financial
5. Tower Bancorp
6. Rockville Financial
7. Capital Bank
8. Bridge Capital Holdings
9. Bank of Kentucky Financial
10. Center Bancorp
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Insider data sourced from Yahoo! Finance. Institutional data sourced from Fidelity.