How would a very large cash deposit affect a small bank?
August 28, 2008 11:12 AM   Subscribe

Lets say you win a very large lottery (ie +$50 Mil), and you decide to just take the whole thing in to your local small town bank, what would that large of a deposit to do the bank?
posted by ShawnString to Work & Money (7 answers total) 4 users marked this as a favorite
A big pile of money just sits there and does nothing. My understanding is the bank would work as quickly as possible to loan it out on the federal funds market to banks that are short on reserves and grow their bank over the long term. If you're talking about the deposit being actual cash, I don't think that has much bearing except for the added security needed to get a Brinks truck in on the double. IANAB (banker) and I'm sure someone will elaborate better.
posted by crapmatic at 11:41 AM on August 28, 2008

Make them very happy.

Chances are that if you came into that kind of money, you'd ask for some financial advices before doing anything with it, and chances are that your financial gurus would tell you to invest it in a diversified way via bank trust department, or several such. They would also not have you put it in standard deposit accounts because of the FDIC insurance limits. Stocks, bonds, real estate or other investments are not insured, either, but with diversification and equity, you'd be relatively safe while maximizing your return.
posted by beagle at 11:42 AM on August 28, 2008

advice, not advices.
posted by beagle at 11:43 AM on August 28, 2008

They will likely be deliriously happy.

Banks have charters and various rules to do business, so you're not going to bust a "mom and pop bank," because they simply don't exist anymore, like George Bailey's Building and Loan from It's a Wonderful Life.

First, let's presume you don't want the $50 million in cash right then and there. For starters, no bank will have that on hand, although a bank could presumably place a large order for cash with the federal reserve if you want to take out a large cash block for "walking around money."

Next, they will start selling you on all sorts of long-term investment strategies that will lock up your funds for them to use now, while providing you with a typical rate of return.

Finally, they will take your cash and source it out in whatever businesses they're into -- commercial lending, mortgage lending, etc.

You might cause them to liquidate some assets in order to meet your needs (e.g. you'll want to buy cars and houses), but looking at the long term, that might be a good problem for them to have if they can keep your business.
posted by Cool Papa Bell at 11:45 AM on August 28, 2008

It would probably go a special account most banks have designated for such a thing. I think it's called the "ChatFilter Savings Account" - the interest rate is not great.

Regardless, a winner would have to be stupid to do that because any holdings with a given bank over 100K aren't FDIC insured. You would spread it out over multiple banks and investment vehicles, so the question is kind of moot. The bank doesn't "hold on" to the money if that's what you're asking. It's all electronic these days, so it's not like it goes into the vault or anything. I think it ends up on their books but otherwise the money goes into the federal reserve system and is loaned to other banks as needed.
posted by ml98tu at 11:45 AM on August 28, 2008 [1 favorite]

If you won $50 million, you probably wouldn't be banking at a normal bank. You'd put your money in a private bank (or a private banking division of a large bank). These banks cater to high-net-worth individuals. They are not going to make you spread your money around to 500 banks to insure it properly under the FDIC -- they will provide private insurance.
posted by kindall at 11:55 AM on August 28, 2008

Best answer: I work for a bank. A very similar situation has happened at my location. Client came in with ~$30 mil lottery win.

One of the key ways we as a branch are ranked is in what's called "growth in customer balances". This pretty much took care of our target for the year.

Once the funds are deposited, we notify private banking and hand the client off to people who are much better at handling large sums.
posted by smitt at 12:42 PM on August 28, 2008 [3 favorites]

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