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The investment bank reports that a reversal of the Fed's QE program will sap bank deposits and will set off a mad dash for retail money at banks with less than $50bn in assets. For context, the Fed is currently holding about $4.5t of mortgage securities that it will not be renewing coming this December if it follows its outlined course.
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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.
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