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By September 12, 2016 0 Comments Read More →

Mortgage Rates: Should You Worry About Battered Bank Profits?

Mortgage Rates: Should You Worry About Battered Bank Profits?Pity the nation’s poor banks. According to USA Today, they’re suffering.

“While analysts say a Fed rate hike and higher rates overall would be welcome news for banks’ battered bottom lines, the specter of higher borrowing costs slowing economic activity was viewed as trouble for most sectors,” says the paper. (See: How bank stocks could weather a rate hike from the Federal Reserve)

There are two points about this sentence that caught my attention.

First, there is a little matter of those “battered bottom lines.” I have to tell you, I just don’t see it. According to the Martin J. Gruenberg, Chairman of the Federal Deposit Insurance Corporation, “results for the banking industry were largely positive in the second quarter. Income and revenue both increased from a year ago, loan growth remained strong, there were fewer unprofitable banks, and the number of ‘problem banks’ continued to decline.

“Community banks,” he added, “reported another solid quarter as their net income growth, revenue growth, loan growth, and net interest margins remained appreciably higher than the overall industry.”

That just doesn’t sound too “battered” to me. In the second quarter of 2016 net income for banks totaled $43.6 billion, the highest it’s been going back to 2010. In fact, in the second quarter of 2010 net income amounted to $20.9 billion.

Now let’s see: Isn’t $43.6 billion more than twice as much as $20.9 billion? How is this an example of a “battered” bottom line? Has your income doubled since 2010?


Second, if it is true that “the specter of higher borrowing costs slowing economic activity was viewed as trouble for most sectors,” why is that a problem for anyone except banks? Where, exactly, are the stone tablets which say that bank profits should be put ahead of income for farmers, teachers or folks in the military? Where does it say the government must assure given levels of banking profits?

A Fed rate hike would surely be great for banks but what about the rest of us? If I remember correctly – and I do – when the Fed raised rates by .25 percent last December the prime rate instantly jumped and bank loans became more expensive. But that’s not all that happened.

“Banks did not, however, increase interest rates on savings accounts or certificates of deposit, nor should consumers expect to see any increases on deposit products in the near future,” reported USA Today.

Get it? Loan costs rose but returns on CDs and savings did not.

Mortgage Rates

Meanwhile, mortgage rates — which are not set by the Fed — went from 3.97 just before the December rate hike to 3.44 percent last week, according to Freddie Mac. While supply and demand plus a free market generate lower rates, the Fed wants to increase bank rates.

While the banks moo and complain even as their profits during the past few years have doubled, why isn’t the Fed more concerned about the typical family? According to the Census Bureau, household income in 2014 was 7.2 percent lower than in 1999.

If only people had lobbyists….

(Photo courtesy of Brian Jacobs)

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