Process
Status Items Output None Questions None Claims None Highlights Done See section below
Highlights
id548259199
“When interest rates rise, profitability in the banking sector increases,” Investopedia explains. “Banks make money by accepting cash deposits from their customers in return for interest payments and then investing that money elsewhere. The bank’s profit is the difference between the interest they pay their depositors and the yield they make through investing. Higher interest rates increase the yield on their investments.” The current moment is an extreme example of this axiom: big banks are reaping outsize payouts from net interest income because the spread between depositor payment rates and interest rates has become so enormous.
id548259305
a new Bank of America customer will receive about “0.01% on a savings account, but pay 6.90% on a mortgage and 15% to 27% on a credit card.”
id548259329
“The biggest banks are exploiting the higher interest rate environment to benefit their executives and shareholders, not the ordinary Americans whose deposits provide the funding necessary for those banks to operate,” Reed wrote in his letter to bank CEOs, demanding to know “why your bank still pays the same very low interest rates on deposits even as it makes giant profits by charging borrowers higher interest rates on loans.”
id548259723
While it’s true that the spread between loan rates and deposit rates provide banks with resources to provide basic services, it doesn’t explain why that spread is at a record high. After all, higher interest rates do not mean banks suddenly need to spend more on ATM machines, tellers, and customer website portals.
id548259808
they offer “competitive rates,” that was technically true but also wildly deceptive — they are the oligopolies that collusively set the parameters of the competition.
id548259884
after a long era of near-zero interest rates, Americans are not conditioned to shop their deposits
id548259900
financial panics generate headlines about midsized banks teetering on the brink of collapse, depositors may be generally hesitant to move. They may also be particularly averse to depart the too-big-to-fail banks because of the government’s implicit backstop guarantees that are not offered to other financial institutions.
id548259963
even as banks refuse to pass on more of their interest profits to depositors, “customers remain loyal to their primary bank in high proportions,”