Skepticism Grows About Higher Fed Rates Helping Banks’ Margins

Skepticism Grows About Higher Fed Rates Helping Banks’ Margins

11 April 2017, 19:25
Josephine Kreus

When the Federal Reserve raised benchmark interest rates last month, it took North Carolina lender BB&T Corp. less than an hour to announce it was passing that cost along to borrowers. Depositors, however, have yet to see the benefit.

For many investors, such discipline means U.S. banks are about to feast on rising interest rates -- profiting from a fatter margin between what they charge for loans, and the rewards offered depositors who provide the funds. Now, a small but growing chorus of senior executives and analysts is signaling that resolve may fray and that shareholder optimism is too high.

Banks are under unprecedented pressure to break ranks and compete for deposits. Compared with past cycles, more savers are web savvy -- able to comparison shop and transfer money online to firms offering better deals. Money-market funds that suffered for years with near-zero rates are eager to lure back customers. And new liquidity rules encourage banks to draw more funding from consumer deposits, pushing lenders to fight for those clients.

“We’ve never really seen this movie before,” JPMorgan Chase & Co. Chief Financial Officer Marianne Lake warned investors in February. Lenders are “coming off of zero-bound rates in a world where liquidity requirements and technology advancements will increase the competition to get deposits and where customers are more rate aware.” [Read more... ]
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