This is a sign of how many people are jumping to the safety of insured bank accounts and how banks are having trouble bringing in more loans to pay for those deposits. And it's yet another sign of downward pressure on deposit rates.
Chesapeake Bank started the internet bank Clear Sky Accounts in November of 2008, and in January they launched a promotion for its savings account: 3.75% APY guaranteed to 3/31/09. They were so overwhelmed by deposits, they just stopped accepting new applications. In addition, depositors who opened the savings account during the promotion will no longer be allowed to make additional deposits.
Submitted: Feb 13, 2009
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View Article: http://bankdeals.blogspot.com/2009/02/clear-sky-stops-accepting-new...
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Comments Received:
Clear Sky and its parent Chesapeake Bank must have felt that they didn't have anything to do with the money. Treasuries are yielding below 3.75% so they could't park the money there. Their parent company, Chesapeake Bank is offering a 30 year mortgage at 5.223% so either there wasn't enough demand or the margin wasn't enough for them to make cash.
Or, they became alarmed at the amount of relatively "high rate" deposits they were bringing in as liabilities. As rates drop, the liability was getting greater and greater. Still, the offer would have ended in March so they must have really been flooded to stop the promo with a little more than a month to go.
The Clear Sky case is another example of the amount of cash flooding into safe investments as investors flee the market. It's also an example of how powerful a deposit gathering tool the Internet has become. Hundreds of millions can be raised in days by even a small bank - Chesapeake holds about $500 million in assets.
Posted: Feb 14, 2009
JD
(Unregistered)
I agree with all of the above. The idea of a bank that has raised too much money because of its success in using the internet, and probably this very website, is unprecedented and is juxtaposed to hedge funds that would routinely do the same thing until about a year ago. My, how things have changed. But ... I do question one thing. It seems that a new bank, or relatively small bank, can easily capitalize on the current environment by buying up assets or lending to other less liquid banks at a much higher rate. Hence, a whole new series of major players can emerge. Cash at 3.05% is still very cheap and you would think that they would still want all of it that they could get... Just my take.
Posted: Feb 15, 2009
