Deposits Flood Into S&Ls; After Market Crash : Record $6.1-Billion Gain During Month

Deposits poured into insured accounts at savings and loan institutions in October as investors sought to get off the stock market roller coaster, a government report indicated Friday.

The Federal Home Loan Bank Board said new over-the-counter deposits shot up $6.1 billion at federally insured thrift institutions, a record for October and the biggest monthly increase in more than three years.

“We’re seeing an increase in deposits as a result of nervousness about the stock market,” said James Barth, the bank board’s chief economist. “This dramatizes the confidence people have in federally insured institutions,” he said.

The large one-month gain contrasted sharply with the general pattern for most of this year. Deposits had steadily dwindled at S&Ls; as investors sought other places to put their funds.

Deposits slipped in 10 of the 12 months prior to October, falling $1.6 billion in September and $541 million in August.

For the first 10 months of this year, net new deposits dropped by $7.7 billion, but they would have been down by almost twice that amount if it had not been for the big increase in October.

Doesn’t Look Temporary

Some of the gain can be attributed to expected seasonal factors, Barth said. Customers, after withdrawing money in late summer and September for vacations and tuition bills, usually begin replenishing savings accounts in October.

However, about three-quarters of the October jump came from deposits placed by brokers on behalf of investors, a strong indication that the stock market volatility was the chief cause, he said.

Mark Obrinsky, an economist with the U.S. League of Savings Institutions, the industry’s largest trade group, said the new deposits “won’t drain away in a short period.”

“Sooner or later (investors) will look to do other things with their money, but only if they think there are good alternatives,” he said.

However, Paul Getman, an economist with the Wefa Group, a forecasting firm based in Bala Cynwyd, Pa., said the increase in deposits will be “very limited and very temporary.”

Depending on how long it takes for the markets to settle, the flow in funds to S&Ls; should reverse by the end of the year, certainly not much later than the end of March, he said.

“There’s a certain amount of irony in this because if the stock market can be considered sick, a lot of S&Ls; can be considered dead,” Getman said. “There’s essentially been a silent run on thrifts and the stock market crash is not going to turn that around,” he said.

The October deposit increase was the largest since $7.5 billion in May, 1984.