Corporations in the US added US$1.01 trillion, or 35.9%, to their cash holdings in 2020 according to The Carfang Group analysis of recent Federal Reserve data. For the fourth quarter, cash is virtually unchanged, down only US$6bn (0.2%) and now stands at US$3.82 trillion.

"Corporate cash stabilised at historically high levels during the second half of 2020," commented Anthony J. Carfang, managing director at The Carfang Group. "Following a tumultuous first half in which the COVID pandemic shut down global economies and central banks massively intervened, corporate cash soared."

Historic growth for Fed balance sheet and money supply

The Fed’s balance sheet assets grew from US$4.1 trillion to US$7.4 trillion during 2020, a jump of 79%. It continued increasing by US$307bn during the fourth quarter. Bank reserves, which grew from US$1.6 trillion to US$3.0 trillion in the first half, continued to grow and ended the year at US$3.1 trillion. 

Measures of the US money supply also grew at historic rates. M1 money, essentially physical currency, grew by 65% for the year. Its increase is accelerating as it grew by 22% in the fourth quarter alone. M2, which also includes 'near money' such as savings, money market securities, mutual funds and other time deposits, grew a more modest, but still historic, 25% for the year and 4% during the fourth quarter.

Treasurers increase cash stockpiles

Corporate treasurers substantially increased their cash holdings during 2020. The Carfang Group anaylsis of the latest data suggests these increases may have stabilised, albeit at levels never before seen. All major cash categories increased significantly this past year. Cash and checkable deposits grew by US$418bn, time deposits by US$74bn and money funds grew by US$358bn.

Corporate cash holdings were 17.8% of US GDP, three times the level of the early 1990s. During the second quarter cash levels soared, exceeding 20% of GDP. The third quarter GDP rebound, combined with the drop in corporate cash, brought the ratio down to 18.1%, and it now rests at 17.8%. There had been a three-decade long upward trend in this ratio, but the current leap is well above that trend line. As this is unprecedented, the macroeconomic effects remain to be seen.

Corporate holdings of checkable deposits and currency grew 33% in 2020 and time deposits grew by 38%. However, corporate holdings of money market funds jumped by 64%.

Checkable deposits and currency remained at 44% of corporate cash, after increasing from 35% following the SEC’s tighter rules on money market funds implemented in 2016.

Time deposits now account for 7.1% of corporate cash, dipping toward the lower end of its recent historical range. This is likely due to the low rates resulting from the pandemic-related aggressive Federal Reserve monetary policies.

Money funds, at 24% corporate cash, pulled back slightly during the quarter, but still remain near their highest level since mid-2016 when the SEC instituted new regulations. That's still less than half the 59% level of December 2008.

Many companies were also actively drawing down credit lines to further build their liquidity buffers during 2020. Commercial and industrial loans grew by US$233bn to US$2.4 trillion during the year, up 11%, after peaking at US$2.7 trillion at mid-year.