- Royce Mendes, Managing Director and Head of Macro Strategy • Tiago Figueiredo, Macro Strategist
Economic Viewpoint
Strategic View: Revisiting the “Excess Cash” Hypothesis in Canada
January 24, 2025
It’s tempting to conclude that as interest rates on term deposits decline, some of the $500 billion increase in bank deposits since 2019 will find its way into stocks. But this so‑called excess cash isn’t all that excess when viewed in the appropriate context. Our analysis shows that even if interest rates fall materially from current levels, there’s limited scope for those funds to flow into other asset classes. Our hypothesis is that much of the money currently in term deposits will be used either to pay down mortgages or to beef up demand deposit balances that have been on an unusual downward trend.