I'm Ebrahim Poonawala, head of North America Banks Research of Bank of America. On behalf of my colleagues in research, Craig Siegenthaler, Josh Shanker, Mihir Bhatia, and Matt O'Neill, I would like to welcome you all to Bank of America's 2023 Financial Services Conference. We have over 100 corporates attending over the next three days, so it'll be an interesting time to just get their outlook in terms of the economy, key industry trends that all of us should be watching for. We also have a full slate of thematic panels from electronification of FIG trading to the health of the commercial real estate market, to discussing the outlook for monetary policy and its impact on bank funding. Hopefully you'll find it a productive three days.
Without further ado, I'd like to introduce our first speaker to kick off the conference, my big boss and also the Chair and CEO of Bank of America, Brian Moynihan.
Welcome.
Thank you. Thanks for being here.
My pleasure.
I think just to kick it off, Brian, it's on the macro outlook. All of us came into the year expectation for a mild recession, trying to time when things would take a downturn. You get a very, very strong job print last month. You have an amazing vantage point talking to our clients, both on the commercial consumer side. Give us a sense of what customers are thinking, what's driving business decisions, hiring. There's a lot of focus on jobs.
Let's start with the macro, thank all of our clients for attending, thank you for the business you do with our company. Yeah, we don't take it lightly, and we're here to support you. If you think about what we're hearing from clients and customers and what we see, we can divide that up. In terms of commercial customers, what you're hearing is the same thing you read in the press, right? They're trying to be careful. They're trying to make sure they can maintain margins. They're trying to make sure that they don't see a change in final demand. Most of them, honestly, when you ask them, are saying, "I thought I'd be in worse condition right now.
I thought I'd be facing more pressures, and things are still fine." That's a conundrum because at the end of the day, they're trying to be careful on hiring and things like that in a general sense. Yet they're seeing, you know, the final demand of their products and services strong. There are differences in that. There are negative cash flow, you know, raise equity capital, lose money and have a business. That stopped cold because the markets aren't receptive to that. The investors aren't receptive to that. That's a narrow group of what goes on in the U.S. economy. For that, on that side, you take, you know, the investment in the new energy is just through the roof, right? You see different industries, different outcomes.
I think overall, you know, mid-sized companies, I was with a group of them, last week, they all kind of don't want to say it out loud, honestly, that they're fine, they're doing fine. They're holding margins up better than they thought, but they're also making sure they understand where dynamic goes. If you look on the wealthy side, clients, you're all in the markets and you're investing their money, you know, they're basically invested in, you know, cash balances aren't excessive. They're not worried about things, and they move it around and think about it. It's not like they're afraid of the market, and you've seen the market respond. If you look at the consumer, you know, they keep spending money. In the end of the day, we're the largest economy in the world.
The consumer-driven part of it, the consumption part of it, is as big as any other economy on its own. Those consumers have money, they're employed, and they're spending money, and they have a lot of capacity to borrow. That is what makes whatever we're going through different, is that the consumer is that strong, and that's a conundrum for the Fed to slow it, slow it down. It's a, it's a good thing. It's the best thing about the U.S. is a consumption-led economy by U.S. consumers who spend money very well, you know, is a, is a nice place to be. That's, that's the tension that's going on. Yep, so we can talk about our consumers and what we see in the balance and stuff. In general, consumers remain very solid and continue to spend money.
Got it. Maybe just on that front of consumer, obviously job market's strong. There's been a lot of focus on the excess savings that were built up during the pandemic. I know you cited checking account balances and such. Give us a sense of just the health of the consumer. Are we at the risk of, like, things falling off a cliff at some point this year?
Well, I think one of the points that we follow in the company when we think about, you know, future risk, for lack of a better term, is, you know, new claims from employment. Those numbers now are running. They peaked in the, I don't know, middle of last summer, if I remember exactly, and then they came down again. The nominal number then is 50 years when the workforce was half the size. In the late sixties, 80 million Americans worked. Now 160 million Americans work. When you hear these numbers are 50 years old or 60, you got to step back and realize that they're nominal numbers against twice the size of workforce. There is just no slowdown in employment prospects, right? That's why the unemployment number sits there.
That, that's good news. If you look at the balances of U.S., we've been citing for a long time, and part of it was to get people's mind around what was going on with the consumer. We took our balances and froze them in January 2020. We layered them by dollar-denominated cohorts and said, "Take those balance, those customers, and run that customer and those cohorts out," you know, when we're giving this time. If you look today for the two to 5,000 one, which is the one I cite the most, and said the $2,000-$5,000 of cleared balances in people's accounts, that sort of median coming up household. They had about $3,500 pre-pandemic, and they're sitting on $12,800-$12,900 today.
It peaked at 13,400 in April of 2022, then it drifted down, it's basically been relatively stable for the last few months. You know, year-over-year, you know, it's actually up a little bit, believe it or not. You'd say, "Well, what's that?" That's the core part of America. You go to the next tranche above them is $5,000-$10,000 originally, $7,500 sitting with $20,000-odd in the balances in their checking savings and sort of related balances. That means they're spending the money down, yes, but it's a very slow rate of spend. What will change that will really be one thing is they don't have cash flow coming in.
If you look at the cash flow, you know Candace and, you know, and the institute side will put more of that out. You know, the cash flow is still pretty strong on a relative sense. The way they're spending money is back to pre-pandemic split between necessary and discretionary. Nothing unusual there. We feel pretty good about that. The question is, do they have the capacity to borrow? The answer is yes. You know, the equity value in our home is high. The usage on their lines of credit, from, you know, credit card borrowing is still way below the pandemic as a percentage. The pay rate is 30% every month. You know, 30% of credit card balances pay off. It used to be 23, 24. You know, those are major differences in terms of behavior.
They have capacity in the home. They have capacity on their credit cards. They have capacity, you know, to borrow because they're working and can pay. You're seeing parts where you see some weakness, not the parts that we play in actually, you know, subprime. Some of your other clients or companies will talk about that and have more articulation. You know, you really don't see it overall. That's because, you know, people are employed and getting paid more. You know, if you look at our teammates. Anybody you know, $100,000 of salaries and wages year-over-year will have at least 10% increase this year from 2021 to 2022. 10%, not you know. This year we'll see what happens. It's across the board. That's 100,000 plus people.
That's not different to a lot of employers. I think all that bodes well. Say our balances are strong, their credit availability is strong. The spending activity in January actually picked up a little bit, is running around 5% year-over-year across, you know, almost $400 billion of movement of money from checks written, ATM cash usage, debit and credit cards, et cetera. That number is more consistent with a growing economy, quite frankly.
Sure.
-than a recessionary economy. It's consistent with a 2% growth economy. Back in 2017, 2018, 2019 when the economy was bouncing around, that 5% would be the number. It's a little faster economy. You look now, it came down from 14% type growth rates in, you know, 2021, early 2022 over early 2021 ran down to 5% at year-end. It's actually come up a little bit and a little stronger through the year to date through February. That means it's not slowing down.
Far from the gloom and doom that's called the market, right? Yeah.
Your team still has a recession prediction starting. They moved it out a quarter. Every time I speak, they move it out another quarter.
Yeah.
If you want to guess what Michael and Candace and all the team's going to do tomorrow, they're going to move it out a quarter because that's what they do to me. They've got to start in the third, Q4, Q1. That's really the thing. By the way, if you look at the blue-chip estimates from last fall, nobody had a recession predicted. They're all talking about it, but nobody actually had it in their numbers. Now there's a fair amount in their numbers. If you just look at what happened over the last three months, it's all moved out. That's just because of this dynamic that they can't see the consumer slowing down. The consumer is employed, and delinquencies and credit are low.
They're sitting there saying, "I know it's got to come." The Fed can't tighten this aggressively and not cause.
Sure.
I understand that. They don't see it. That's why I keep seeing that just move out a little bit and get a little less severe each time our team comes out.
I blame our team too, so.
Yeah.
I think maybe just pivoting to the bank. Brian, I know in one of the past conversations, we talked about Bank of America as a growth company.
Okay.
I know we all get caught up in the next quarter's NII and expense. Just take a step back and remind us about the franchise, your outlook in terms of your confidence in the growth outlook as you look across the eight lines of businesses.
It's fine with me if we're not caught up in the next quarter because that's not how you run a company. That's, unfortunately, all your colleagues want to load their models and you do too.
Sure.
If you think we have our senior leaders over the next couple of days in the company, we've been laying out sort of this, you know, post-pandemic, you know, going back and driving the same set of principles that we drove in, you know, 2015 to 19 up to the pandemic. When we talked about responsible growth the first time publicly in 2015. If you look from that time forward, you had this loans group, and we're outgrowing the run off of bad loans in the company deposits group.
you know, fees were relatively flat, but what went away was people forget we had a big mortgage servicing book that was still running off, and we sold some stuff and took that and replaced by core, you know, investment banking, brokerage wealth management related fees, consumer fees, and even on consumer fees, we kept dialing down the penalty aspects, so they're relatively flat. What we really went on in there is we also were able to have expenses continue to come down and have operating leverage for, you know, banking 20 quarters in a row. That's, that's the dam, of course, starting to see again. We're six quarters into that. You know, the real challenge, the real thought process is last year we grew 1 million checking accounts, 90%+ of those are core.
Average starting balance, $7,000. You know that in core mass market, mass affluent America, you know, that's 1% of households came in the company. Net, not gross, net. That's now happened. That's a big share gain because sometime over time, those clients will do a lot of different things in life. If you have their primary account, you are the drivers there. If you look on the wealth management side, I think we had a record. We had $100 and odd billion of flows in the business, but also we had new household formation at the highest level we've had in a long time. That's the core organic growth engine kicking back in post-pandemic.
If you go to the market side, we put $200 billion more to serve all of you as customers into the balance sheet, having more size and scale. You saw that rewarded. Jimmy and the team have done a good job there. Investment banking is, you know, we're following the market, and we're still third or fourth depending on investment banking fees. It's just the fees pool went from X to half of X, and that makes it a little interesting. That's not that different than it was 17, 18, 19, honestly. It's, you know, we're running $1 billion-ish now a quarter. It was $1.2 billion or $1.4 billion a quarter back then maybe. What happens, you have this explosion in that one.
Again, working with the corporate bank, developing more clients, more logos as they call it in the commercial banking system, the GTS, the global transaction franchise. The growth across the households, the growth across, you know, new households, people doing more with us, you know, that's the growth engine. That's been going on. It's, you know, in 2020 it slowed down because everybody just pulled back. As soon as it came out in 2021 we started getting back on the NorOrg, you know, the core organic growth. That's the power of the franchise, which is across those 8 lines of business, and then how they work together is pretty amazing. Merrill Edge I think had 400,000 new clients with an average starting balance of $60,000.
If you compare that against a lot of people talk about what's going on in those types of, have some, that's multiples of their opening balances. That is a good core mass affluent customer bringing their relationship. They're starting a relationship with us. In there there's accounts starting with $5,000 in them. Don't but the average of 60, so that shows you the name is there. Account growth was 400,000, round up to 425 or something like that on a base of $3.5 million. That's a big account growth. Then that compounds up. We're just driving that customer growth and penetration current customers across the 4 or 5 key products in each segment. Then we link them together a lot of work.
That's what's going on. That then translates into operating leverage. We'll see where rates go, and we'll see will deposit balances end up and all that happy stuff. If I have more customers doing more with us, I think we'll be fine.
That's remarkable though. 1 million net checking accounts for the bank our size. I guess tied to that, right, I think on the consumer banking a lot of focus on just what the move towards digital away from branches. would love to hear, one, your perspective on branches. it feels like as much as people want to push branches aside, they're not going away.
Yeah.
Talk to us the importance of the digital delivery for the consumer, both from an acquisition and servicing. Where's the bank investing in when you think about digital?
Yeah. I think what's come out at first is, you know, state of the state in terms of activity. Half the sales in the consumer business go digital front to back. Every, I mean, other way. That we used to talk about sales of digital and mortgage or something like that. It was started digitally, it didn't end up, you know, it fell out. Now it's front to back. You can actually every product in that 17, 18, 19 we were basically ensuring every single product was 100% digitally deliverable or not. The ones that weren't, fine, don't make it half. Taken, the card and the home equity line, and the mortgage and the car loan, checking account, you know, Merrill Edge, you know, front to back.
That then allows you to have this sort of infinite leverage. During the pandemic, we went from about $1.5 billion of marketing to $2 billion marketing across the whole platform, driving that digital acquisition. That's a different strategy, you know, that we had in, you know, sort of 15, 16, 17 because we didn't have the capabilities to actually deliver digitally. You saw another move in terms of need to have physical sales. Let's just say that. Physical sales were depressed in 2020 and then came back up. What's happened is originally you saw the digital percentage go down, and now it's back up over 50%. That shows you you're getting the balance back in the system. That's kind of where we were.
What happened also is 400 branches that we started the pandemic with went away, and we actually put on a few hundred new ones. Even in that 4,400-4,000, you had a few hundred to change underneath that. That's what we've been doing. You're massively changing the retail capabilities. It's critically important to have those great teammates out there serving customers in all those physical locations because people come in, you know, a quarter million times a day, you know, to talk to them. You don't want to be not there, right? You do that. On the other hand, what goes on at those branches is tremendously different because it's less and less transactions. You know, checks deposited at branches year-over-year are down 7% or 8%.
Since pre-pandemic, they're probably down 25% or 30%. That goes out of the system. That's one of the longest transactions, honestly. I hand this check, I got to physically key it in. I got to do all this stuff. I got to hand you the receipt. That's one of the longest service transactions in the branch, honestly. Other than, you know, counts, you know, something's confused and a complaint or what you want. Just a standard. The idea is think about that, 7% a year for the last several years going down and down and down allows you to take that capacity with flat headcount at the branches and flat branch count, and dedicate it towards sales and service capability of a higher order.
In other words, that's what the sales force in the grand scheme, we went from 6,000 branches to 100,000 people in the consumer business to now 4,000 branches, about 55,000-60,000 people across the last 10-12 years. The number of customers, the amount of activity, the amount of sales and all that stuff went up. That's the digital trend. What enables that is the digital capacity across all the different dynamics. It's not only sales and service, it's inquiries. Then, you know, you think about everybody's running around, and rightfully so because it's important concrete concept, ChatGPT and the various things.
You know, Erica's out there doing through 1 billion interactions, which is an artificial intelligence, you know, voice or text activated natural language processing engine that goes through our systems and finds answers. We've been learning on it. We're up to 150 million interactions a quarter. You know, you know we're past 1 billion in this new product with 18 million people using it. That's what enables you to start moving the capacity around. Yet nobody uses cash. I know all of you don't use cash. Between today and tomorrow, a quarter billion dollars will go out of the ATMs in twenties and hundreds. Why is that? Because people do use cash. The ability to and cash is readily available.
The ability to keep managing that down, checks written down, checks deposited down allows you to create capacity by engineering the capacity. That's the magic of just being disciplined on OpEx as we call it.
The barber in my town still uses cash, so I'm always running to the ATM.
The interesting thing is the customer score is the highest they've ever been in the company. That's because also you're engineering out complexity and mistakes that can be made. Yet, look, we're not perfect, but the customer scores rose all during that period. We had this massive change going on in the physical way we delivered services, you know, physically physical, and also physically even the mobile bank. You know, think about that. You know, we're changing that thing all the time, and any one of them could go bump in a night and cause problems. The customer scores keep going up, the teammate scores are strong. That dynamic then sets you up for 1 million new checking accounts coming near 400,000 Merrill Edge accounts, et cetera, that you then can compound up.
On that. I think that's a great point regarding, I think BofA was earlier in the cycle in terms of AI and Erica. When you think about digital investments, like a lot of peers do a lot of M&A. Philosophically, how do you think about investing in digital? Where's the bank really, like the top three areas that the bank's investing in today?
Well, we bought a company in the GTS area that did medical payments or something like that. There's some stuff that goes on there. We invest with companies that provide us services, like in the trading platforms. A lot of businesses have gone up to, you know, I think you said earlier, sort of digitized fixed income trading and things like that. You know, we and our peers are investors in those companies. You know, Zelle would be a big example of that, right? We all basically took EWS and changed it, you know, revamped it into Zelle and things like that. Those are all investments we make. By and large, it is not homegrown software. It's software that we can acquire and integrate, and then also homegrown software.
We've got, you know, $3.5 billion of technology development a year now, $3.7 this year, up from $3.4 last year. You know, it goes in all different directions. A big part of that is integrating products and services that are out there from the best companies in the world and then figuring out how to make them work better. Erica was not homegrown in that we went to people and got them to do the natural language processing and analytical capabilities and build it for us, with us, and we built it together. There wasn't a product like you take off the shelf and ChatGPT there are other similar capabilities may change that. It wasn't there. That's one you got some and built some.
Yep.
That's what you do. You let the team that are experts in it, you know, the tens of thousands of developers we have out there, they got to figure out the answer. The business people have to get the requirements, and they have to figure out the answer, and you can't do it. Making acquisitions is just not the way we've done it, largely just because it's just hard to get something out of those. In the size of our company, we acquired the merchant services business to take control of it, acquired the half we didn't have, spent $300 million-$400 million into the system, and now we're out selling it. That was a little different.
We already you know, we owned half of it, so it wasn't that remarkable to think I could bring in the half and retool it. Other things are a little harder to integrate, because of just the cultural differences and all that stuff. You know, we're always looking and thinking about it.
Maybe I can spending a minute on Merrill and wealth management. Results have been extremely strong. Like when you think about the business, any product gaps that stick out that you feel like we should be addressing? How do you see like the bank position relative to competitors, which are all of sort of different shapes and kinds?
The wealth management business broadly, you know, we are a U.S.-based business. They're just tremendous opportunity because you know, I'd argue that we probably own one of the biggest businesses in the world, and we only do business in the U.S. That makes us one of the biggest businesses in the U.S. I think, you know, market share is 7%, 8% or something like that. It's not like it's an aggregated business or a consolidated business. There's plenty of opportunity. The way we built it starting 20-plus years ago was we wanted to have a continuum from, you know, personal, you know, take one of our teammates come to work for us, one of your firms, you know, that gets a job and starts their first investing and, you know, et cetera, et cetera.
You want to have a first investment product, and then you want to build through their life that they would never have to change companies. If you go back to traditional banking, you know, I came out of the Fleet side. We bought a company called Quick & Reilly, if you remember those days. A lot of you are probably old enough to remember. You know, we bought that to start to fill in this gap that the banks typically had something going on at the branches, and then the customer would disappear and then show back up in a private bank. Merrill changed that dynamic at Bank of America, you know, completely because you ended up with the best financial advisor force in the business to fill that gap. Everybody's trying to develop it.
Everybody was, you know, doing 1,000 financial advisors, 2,000, 3,000. We now have, you know, 3,000 or 4,000 people in the branches still doing that. We have, you know, this wonderful franchise with Merrill and the private bank that is, you know, tens of thousands of people now handling wealth management. That continuum is the key. If it's a business entrepreneur and they sell their company, you already have them on the business platform. If it's a person opening our account and then you move along, you have them on the, you know, the personal platform, and then you bring that together through how you go after the business.
What we do in the local markets ex-execution in our company, we'll just reward our top markets, $7 million referrals going across the businesses and local markets, up from $300,000 a number of years ago. Those teammates, you know, largely dominate in the field by what consumer teammates, Merrill teammates, private banking teammates and business banking, commercial banking. They're playing that local in every market around the 90 odd markets we serve. They're Asheville, North Carolina, which has come out well in this, or Orange County. They are integrating that attack, that's kind of interesting. That continuum is critical, and that's why the wealth management business will continue to do better than anybody else, because you're bringing in 400,000 new investor clients into the Merrill Edge platform.
That's some of those people who get wealthier and want advice. Some people continue their whole life without advice. You can do it. Even if you become a multi-millionaire or any number. You can continue to do, you know, self-oriented products that manage themselves, maybe in automated rebalancing platforms and very efficient. You can go to the advisors or you can have, and you can have a trust capability, and you can borrow, and those are interesting things. It's the holistic nature.
Right.
Of the continuum combined with having all the capabilities. You have one of the biggest trust business in the world, one of the biggest lending businesses to wealthy people in the world, and the investment business. Are we always pushing around? Yeah. On alternatives, we keep improving our platform on things like that, bringing clients, things they might not always see. You know, you're always improving the product set. The core piece of it is unique is that having that continuum, and I'm not sure anybody else is close.
Maybe I guess just moving to top of the house in terms of expenses, clearly a big focus for the industry. I think our guidance is about 2% expense growth for the year. Two things. One, how do you have that controlled expense messaging at the same time, have your line of business heads go out, make the investments, do the right hires? Like, how do you message balance those dual messages?
Well, at the end of the day, you know, it's not something we haven't done before. You know, all the way leading up to pandemic, we were managing headcount down, and then, you know, activity rose, and that was by doing all the soft banks and engineering out. Having the pandemic, because of some specialized programs, we had to increase headcount because of just the flurry of activity and the way you did work and then some investments. We've got to now bring that back down. We're doing it as we speak. How do you do that? You just slow down the hiring. Our attrition rate from last year, this time this year has fallen in half. That was from 14% to 7%. Think about that.
Across 200+ thousand people, that's a lot less people have to hire. You had to, you had to pull that brake immediately, and we did. Now you're seeing the headcount back down because it wasn't that we needed the people, is that we couldn't think this. You know, as we went through the summer last year, the Great Resignation, et cetera, you're afraid you couldn't hire enough. The engine started cranking, and we decided to do something we're pretty good at. Suddenly, you know, we were filling all the jobs, and we hired net 3,000 people increase in the Q4. If you look at it by month, it was much more loaded. We had people scheduled to start after year-end and are on.
Now we're seeing the headcount tip back down because at the end of the day, the way you control expenses in a big enterprise like ours is just the work. You have to engineer the work out. You can't not do a great job for your clients. You can't not do a great job for the risk and control and everything. You have to engineer the work out and then let the headcount drift into it. That's what we've been doing for years. When I became CEO, the management team came together. We had 285,000 people. We went to a high of 305,000 people, reached a low of 204,000 people. Now we're running 218, 17, 18 thousand people, and we got to bring that back down.
Just the example I used in the branch before, you went back 100,000 people, I'd say maybe 15,000-20,000 were involved in the sales, you know, client sales process, and now 2x that amount. The rest in the service side has come way down. You know, that's by engineering out all that activity. You know, those checks deposited, you know, those cash at the ATMs that, you know, the methodologies of payment, the Zelle replace. Zelle, there's more Zelle transactions sent by our customers are checks written by them. That crossed over about three to four quarters and is growing a much faster rate and ultimately replaces all small balance checks. The dollar volume of checks written is no different.
It's the number of checks is down 25% in the last few years. All that engineering, you take out work, but it's all about heads. I mean, at the end of the day, we have a wonderfully talented group of people. We have a bunch of computers and data that they operate on, and we have the buildings to keep them dry. That's our business. I don't have like, you know, geez, let's buy less inventory here and not sell. That's not what you do. The question is $36 billion of our expense base is human beings and talented human beings, and how do you control it is you actually, you want to pay them more, and you want to have better benefits. How do you do that? You keep engineering out the work and bring the headcount down.
That's a lot of, you know, what you hear from the $15 and $22 an hour. We haven't raised the employee premium on people who make $50,000 since 2011. We've never moved. We dropped it in half that year, and we never changed it. Not nominal dollars. They pay the same as they paid in 2011. You get them more well, you can engineer the expense down. You get less people in it, the benefits cost comes down. That's how you do it. You always work in that. It all comes down to people make a mistake that people cost you money, the work costs you money, people do it. The work can be done by people, by machines, or by the customer.
How do you engineer that? You have to engineer the work out, and then the boxes will fill back up with the people you need. The immediate is just slowing down the hiring because we were over hired, and we'll come back down. We should be about two. In September, we were 213, 214-ish. We should be back down to that relatively quickly over the next, you know, three or four months. We'll start to engineer that down because that was sort of, we didn't need that. Then, you know, the way then you make sure that you don't make a mistake is we keep hiring, the teammates to sell, you know, the financial advisors, the private bankers, the coworkers. Right now we're basically hunkered down.
No managers, you know, you know, people in sort of functions that don't face a customer and or core producers, you know, call center agents and things like that. You got to keep your staffing levels there. That, that's easily managed.
Got it. I guess maybe on another to-topic on just on deposits, right? I think you provided a lot of details during the earnings in terms of deposit trends. I think the challenge when you talk to investors is you've not been in a 5% Fed funds for so long.
Yeah.
That's the uncertainty, I think, more than like anyone having a sure view. Like, what are your thoughts? I mean, I guess even year to date, how deposit makes growth, how are these things trending?
I think not only is the rate environment an inverted curve and a nominal amount higher that's different, but it's also how the deposits got here. You know, the classic, you know, economic analysis and, you know, M2 and all that stuff that you and your colleagues spend so much time analyzing. The reality is something different happened here. You know, the Fed printing money. No, the U.S. government went out and issued trillions of dollars of debt and turned around and handed it to individuals. That's the dynamic that's very, very different. What happens then? The expectation is people would spend it down. It's not happened. Why? Because people are working in cash flow positive. That money was given to people, rightfully so, in a period of extreme uncertainty to help make sure that they wouldn't change their behavior during the pandemic.
Well, guess what? The pandemic, you know, U.S. opened up, the economy grew past where it was, you know, 12 months in. It was growing again, and two or three more amounts came. There's not only that dynamic of the rate structure, there's also a dynamic of the extra $2 trillion that floated in early 2021, I think mid 2021. That, you know, if you listen to economists, was clearly not needed to handle the thing, handle the pandemic damage. And then by the way, you know, state level funding, state delayed remittances and things like that. That's all we're dealing with. You know, our deposits are behaving exactly as we predicted they would this time.
That's a series of dynamics around, you know, corporations that tidied their cash up and got more when they see that kind of rate, the higher end, investment cash moved. When I gave the statistics before about the person before the pandemic and after. If you look at the higher people had $1 million in balances or $750,000 in balances pre-pandemic, they're down 25% than they were pre-pandemic and they went up, and then they came down because they deployed the cash because it's not cash they need for their daily cash flow needs. It really comes down to what the deposits are for, who has them, and what they're doing.
Ours are behaving like we thought, not a hell of a lot different than the H.8 data and because, you know, we've got a big customer base. It's exactly what we predicted when we made the NII predictions. It just, but it's a mind bender for everybody because it is, you're trying to figure out these dynamics in a world where common view would be this would happen or that happened. None of that's happened. You know, the common view would be those deposits would be spent down. It hasn't happened. Common view would be as the Fed raised rates so much, you see this massive sucking sound on those things happen. Not much, you know.
That's where I think this question of where the money came from and how it was created, so to speak, and how it was delivered is different. You know, the reality is that in times that, you know, the Fed when they raised rates in 2017, 2018, 2019, our deposits because it was smoother and slower, our deposits grew the entire time because there wasn't this excess amount of cash sitting out there. We grew. In the last year where rates, you know, got up to two and whatever it was, and stayed there for a year with a total all-in cost of deposits of like 40 basis points against 2.5% or whatever it was, that's two plus. Our deposits grew during that, and we didn't change, no rates moved.
That's more the normalized behavior you'd expect. What we're seeing is in transactional deposits, not a lot of change. You know, yeah, there are ebbs and flows by people paying their taxes and bonuses coming in and out and pay, you know, monthly payroll, biweekly payrolls. Corporates are moving at high-end, you know, high-end balances on the consumer side have moved, already moved, you know, because four and a half to five is not that much difference of moving. Then they'll settle in, and then you'll have to grind out that core growth. That 1 million new checking household has to come through and deliver through that. That's what happened, you know, in the last rate raising cycle. You know, we watched every day.
We predicted I make the team predict 12 weeks ahead every week, I make them compare how it came out versus it, because we're learning. I don't make the team. The team does it, but I ask them to do it. To start, now they do it. I don't. You're trying to get them to learn the differences because a lot of the this is the way it should happen stuff isn't on the table because the dollar denominated, the amount of money that went into people's accounts. You know, look, six or seven o r 12 states are giving rebates and taxes now and payments and things now. The SNAP stuff stops and stuff that'll cut. You know, there's a lot of stuff going on that will play out, but they're behaving like we said they would.
Early, five more minutes left. One, just on capital deployment. I mean, I think last year was interesting. We built a fair amount of capital over the back half of the year following the stress test. Can you just remind us in terms of capital deployment priorities and when you think about potential for changes in regulations, like how do you approach capital management, capital return in that backdrop?
Our basic principles, we maintain a 50 basis point buffer to the binding minimum.
Sure.
That binding minimum can change based on different attributes. That's kind of the strategy. We used to have 100, we went down to 50. Largely as you get bigger and bigger numbers, the volatility around that as you get higher capital levels is less honestly. You know, look, they've got to finish Basel, et cetera. You got to get through another stress test with a set of criteria that look in some cases pretty much the same. In other cases, you know, the GDP drop would be more quick, et cetera. You know, we'll see how that plays through. It's not even our models, you know, it's the Fed models, and we don't know what those models. They've never allowed us to look at those models.
We could try to predict them. Everybody can look at them. At the end of the day, it's our models would show that our portfolios handle those types of scenarios pretty well. We'll see what the Fed models show, and we'll see what they do. The basic principle is 50 basis point buffer, maintain capital to grow the business. If loans are growing and RWA is going up, we maintain capital. We do that or the investment made in the markets business. We have RWA targets by each of the businesses. You know, you basically then they hit those targets, and you have the capital ratios. We're around 11.2. We gotta get to 11.4 to be 50 basis points above the new GSIB buffer coming in at next year.
You know, we're doing 40 basis points earning capital a quarter. You pay out, I don't know, 14, 50 basis points in dividends, and then the rest is there to, you know, finish up that growth. You'd expect us to cross over that level relatively shortly. Not this quarter, but probably next quarter with a chunk of this quarter. We're buying back stock as we speak today because the trajectory is strong, and that's how we run it. You know, in terms of, you know, last year that we got a surprise the high side, you know, we'll see what happens this year, but you just absorb that and go on. The number 1 priority for capital is to grow the business organically where the RWA demands and are needed.
The number 2 is to, you know, continue the dividend and grow it, you know, sort of modestly. Number 3 is to buy back stock. We're always doing all of them, honestly. It's not like you do one and then the other and the other. It's all 3 are going on literally as we speak. You know, we increase the dividend a little bit, each year. We, you know, to push it up, keep the payout ratio, you know, in a 30% or below level, importantly, to make sure you never have to cut it. That's a principle we talked about 15 years ago, and it's still true, and we basically walked it up to stay at that level. You have 70% left. What do you need to grow the business? What do you need to...
Everything else goes back to shareholders because at the end of the day, we don't want the capital sitting around the balance sheet waiting, and you just keep adjusting to it. You know, look, our industry is well-capitalized. There's no question. The industry has tremendous liquidity. There's no question. During the pandemic, this industry actually ran to the fire as opposed to was forced to run away from it. You know, the idea that, you know, you've had administrations, two administrations ago, one administration ago, even this one say the industry has plenty of capital. We gotta be careful because what seems like an easy decision to keep raising capital levels, you forget those realities.
Right.
When I told Congress, when we got all the chance to talk to them last year, you know, somebody said, "What does 100 basis points mean?" You basically, what sounds small, you gotta realize there's a 10% increase in the nominal capital, which is $16 billion of capital, which you multiply times 10 again.
Right.
It's $160 billion in lending capacity. You're gonna see a lot of companies in the next three days ask how many have a $160 billion loan book, right? You know, it's a massive change. That's just us, and you take it across to what the industry could be doing, lending wise and supporting growth. That's where you have to have a balance in this. You can always say if, you know.
Right.
You know, out here it'd be safer, but that's an easy decision. Usually cooler heads prevail and things can work too.
Do you think there's a good appreciation of that within policy?
I think there is, and I think it's becoming more plus there's a competitiveness question for us versus other countries. I mean, if you look at the pro forma largest banks in the U.S. and look at their assets to equity assets ratio and their common equity assets ratio and look across the world, you're saying, "Wait a second. You can have institutions the same size and half the capital meets the requirements in other countries." You're saying you can't be counting the beans the same way. The gold plating and the standard, you know, all that stuff really changed. America's capital bases are much bigger as a percentage of size than other countries. That, you know, that's one of the things you gotta square before you adopt a standard that, you know.
Right.
That's otherwise the industry becomes uncompetitive, and this is one of the most competitive industries they have in the country. If you want to believe in America, you gotta remember that this industry is strong.
Mm-hmm.
You know, That's why we're sitting here looking at a economy which is bigger than anybody else's. Actually, pre-financial crisis now, the U.S. economy's gone, I don't know, 13, 14 trillion to 20 trillion. The European economy is basically flat. I always say, which do you want outcome to have? You want banks and, you know, things that can support that kind of economic growth, and that's why banks are big is 'cause the economy's been growing.
No, we've run out of time, so I'd like to end it there. Brian, thank you so much.
Thank you.
Thank you.