Right now, U.S. banks are being flooded with deposits. Federal Reserve holds mountainous levels of cash.  Corporate balance sheets are exploding.  And that's a real problem, according to CNBC's John Carney. 

This so-called "reverse run" is, in large part, due to uncertainty swirling around the European banking system.  The Fed's dollar reserves in Euro banks has declined, which means it must hold larger reserves at U.S. banks. 

Too Much of a Good Thing Can Be Bad.   Having plenty of cash may seem like a good thing, but it's not for banks because it increases their liability.  That, in turn, increases bank fees to the FDIC, which amount to about 0.1% on their total liabilities.  In addition to costing more, the extra deposits are causing banks to approach their regulatory limits on leverage.

Banks like BofA have been trying to shrink their balance sheets to comply with new capital and leverage rules.  Bank of New York Mellon has gone so far as to charge customers who make large cash deposits.  But banks finding its very difficult to reduce typical sources of deposits as an offset to the influx of Fed funds.

Making matters worse for the banks, is that they can't do very much with the money.  It cannot be used to finance long-term loans because the Fed can transfer it out at any time;  and short-term lending pays next to nothing.  a third approach is to keep the cash on reserve at the Fed, which earns banks about 0.25% - which turns out to be just a little more than the cost of holding the cash uninvested.   "Between a Rock and a Hard Place."   [CNBC, 8/18/11]