When Demand for Bank Loans Picks Up, So Should Bank Rates
April 01, 2010
In the past, bank business models were fairly, even admirably simple: take in money from depositors and pay interest on savings accounts, money market accounts, and CDs, and then lend out that money at higher interest rates in the form of mortgages, consumer loans, and business loans.
In the brave new 21st Century, bank business models are startlingly less simple than that. Still, lack of demand for loans appears to contributing to the inability/unwillingness of banks to pay high interest rates on savings accounts, money market accounts, and CDs.
The glaring example of the lack of loan demand scenario is what's been occurring with business loans. At the same time that politicians have been cajoling banks to make loans to small businesses, small business owners have been eschewing borrowing.
CIT Group, the nation's largest commercial lender, went bankrupt in 2009, partially due to lack of demand for business loans. GE Capital, another major business lender, plans to shrink its portfolio by $80 billion over the next four years. For a nice overview of the scenario, check out this article by Keith Girard.
It's not just business owners that are seeking to decrease, rather than increase, their borrowing. According to the Federal Reserve, total household debt fell 1.7 percent in 2009--the first decrease on record, and records have been kept since 1945.
When borrowers want to borrow again, savers can expect to see higher interest rates on savings accounts, money market accounts, and CDs. Until then, bank rates may face an uphill climb.
Another low level retiree
4 April 2010 at 8:22 am
Smirks, HY the lines are getting shorter over at the electronics store :) you can get in line for that NEW Ipad now!
It should fill that void between that blue tooth cell, that text cell, and the MP3 player. And of course don't let that high speed ISP fall behind in their monthly payment.
BTW I use cheap azz dialup if your in the above catagory, don't cry about things to me., go "charge" that new Ipod so the banks can make more lons.
Another low level retiree
1 April 2010 at 4:13 pm
This kinda stuff reminds me of the GOV telling me there's no COLA due to NO inflation!
I could care less what the stock pushers, hedgers, shorters, day tradin goons say about it, I know I pay MORE on all my usual items, including all kinds of new fees and tax.
So unless your one of the ones lined up outside the store waitin to buy yet another apple POS at 500 bucks a pop, I doubt you'd know what I'm sayin.
The banks I deal with all are doin just fine, they get all the free money they want or need, thats why they don't care about savers. If Uncle Ben didn't hand all this free money to them they WOULD be paying good rates for what they would need from us savers.
That's the bottm line in all this.