Would banks be more willing to lend if interest rates went up? (loans, percentage)
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
After finding out the Fed has decided to no adjust key rates, this question went through my head. I'm not too familiar with lending practices, but it seems to me that if rates went up then banks could make larger margins from any sort of lending, which would in turn get them to lend more and get the economy on a faster track to recovery.
I could be way off here, but any other thoughts would be interesting to read.
The problem with higher interest rates is that the SPREAD between what the bank has to pay out to depositers given higher interest rates can destroy any additional margin that they'd get from lending.
Right now the FED is still charging banks no more 0.25% for overnight loans. That is an extraordinarily low rate. The lack of certainty about pretty much anyone's ability to pay back this dough is much more of wet blanket than the lack of profitability -- lending that out at 5% is a 400% premium...
Back 20 years or so ago when the Fed raised overnight rates to over 8% the spread on mortgages was about 2%.
Bankers like low rates, but they also like a healthy stable economy that minimizes their own exposure to risk and causes their customers to eagerly take out loans that reflect optimism. Unemployment, lack of clear signals about taxes and the deficit, as well as out and out distrust of what the party in power is trying to achieve are dampening any appetite for risk...
Higher interest rates seem to drive bank stocks higher, or it used to. Use that as a metric if rates go up. Bank stocks going up is a vote for more profit likely for banks IMHO.
Bank lending is not “reserve constrained”. Banks LEND TO ANY CREDIT WORTHY CUSTOMER THEY CAN FIND and then worry about their reserve positions afterwards. Even the BIS recognizes this. In reality, if the banks are short of reserves then they borrow from each other in the interbank market or, ultimately, they will borrow from the central bank through the so-called discount window. They are reluctant to use the latter facility because it carries a penalty (higher interest cost).But the reason that the commercial banks are currently not lending much is because they are not convinced there are credit worthy customers on their doorstep.
The current incoherence of our economic policy making could diminish if we had a Fed chairman who understood how the banking system genuinely operated, as well as one who would understanding the linkages between banking lending and fiscal policy, which he persistently downplays.
Banks are lending. Getting a loan is easy as long as you have decent credit.
The problem is Washington doesn't have the balls to stand up and look Joe six-pack in the eye and say "your not worthy", "the banks loaned money to you types and you screwed up". Instead they are playing the populist game of bashing the banks because that's the easier route. There's probably even a few who think loaning more money to poor people is a good idea.
Just know there has never been a better time to be a banker making loans with respect to the yield curve. So if qualified borrowers were there they would be making loans hand over fist. But thats not the case.
no! why would they when they can loan interest free from uncle sam and then loan it back to uncle sam at a percentage via t-bills. zero risk and low costs. it's a no brainer
no! why would they when they can loan interest free from uncle sam and then loan it back to uncle sam at a percentage via t-bills. zero risk and low costs. it's a no brainer
Indeed. They are making a killing without having to bother themselves with making loans to the public.
This is also how they got the money to get out of TARP restrictions. They simply borrowed it and repaid the bailout.
Meanwhile the small banks are getting killed. 7 more were closed this past week bringing the total to something like 150 failed banks. Its the untold story behind this mess.
don't forget who ELSE is making money on the TARP repayments besides the executives getting their big bonuses back:
Goldman, which is sharing underwriting duties with Wells Fargo’s Wachovia Securities unit, will get a fee equal to about 2.25% of proceeds, according to Dealogic. It was still not known the exact number of shares that were underwritten between the two investment banks. (goldman's stock underwriting hit a quarterly record)
The push to purge TARP funds has turned into big fees in the past for the nation’s biggest brokerage firms. Morgan Stanley and J.P. Morgan Chase & Co. reported strong results during the second quarter after taking on the role of lead manager in a number of bank capital-raising deals.
In May, Wells Fargo raised $8.6 billion through a stock offering designed to raise more capital at the bank. The issuance translated into about $200 million in gross fees to underwriting banks, which at the time included J.P. Morgan and Wells Fargo’s Wachovia Securities unit.
interesting article by martin armstrong- after he got arrested- discussing the whole structure of goldman, LB, buffett, etc. (fairly long but certainly interesting)
The Silver Bear Cafe (http://www.silverbearcafe.com/private/12.09/curtain.html - broken link)
here is just a small piece:
Goldman Sachs did not only back Obama. You will see they supported McCain as well. They know how to play politics very well. Goldman Sachs works very hard at controlling government. They groom their own for positions within the executive branch. Yet don't forget New Jersey Governor Jon Corzine. Also do not for a moment think this is limited to the United States. We also see the World Bank run by Robert Zoellick, who was a managing director of Goldman Sachs. We find Mario Draghai, who is leading the European Union response to the crisis is yet another Vice President of Goldman Sachs previously. Hank Paulson, appointed a 35-year old Goldman Sachs vice president Neel Kashkari to head the $700 billion Troubled Assets Relief Program (TARP). The Goldman Sachs power base is even on both sides of the Atlantic, and we find that the Merrill Lynch CBO John Thain was also a former co-president of Goldman Sachs and the head of Wachovia Robert Steel was a former Goldman Vice Chairman. This amazing group of political connections runs deep into the workings at the International Monetary Fund as well. The real question is; How Can a Treasury Secretary still have stock in Goldman Sachs?
and:
he first real coordinated scheme began back in 1993 that I could verify. The target market was silver, and the central player, broker-dealer, was Phillips Brothers who were a big commodity outfit in Connecticut, picked up by Salomon Brothers who was later absorbed as well. This ms known as PhiBro of the same fame relating to Marc Rich.
PhiBro had a huge client who they were acting for to buy up the silver market in 1993. This was an aggressive professional strategy. The Commodity Futures Trading Commission could easily see where the buying was centered in real force. They went to PhiBro demanding to know who their client was. PhiBro refused to give up the name. The CFTC ordered PhiBro to just get out of the market. They did. They just dumped everything at the market wiping out small investors in the blink of an eye.
The CFTC just walked away. Had this been a small broker or money manager, he would have been criminally prosecuted. But the CFTC is notorious for never even once bringing a complaint against a major house. The sources I relied upon, gave me the name of the client -Warren Buffett. Based upon this information and belief, when his name came up again in 1997, it was not a shock.
Last edited by floridasandy; 12-20-2009 at 05:24 PM..
don't forget who ELSE is making money on the TARP repayments besides the executives getting their big bonuses back:
Goldman, which is sharing underwriting duties with Wells Fargo’s Wachovia Securities unit, will get a fee equal to about 2.25% of proceeds, according to Dealogic. It was still not known the exact number of shares that were underwritten between the two investment banks. (goldman's stock underwriting hit a quarterly record)
The push to purge TARP funds has turned into big fees in the past for the nation’s biggest brokerage firms. Morgan Stanley and J.P. Morgan Chase & Co. reported strong results during the second quarter after taking on the role of lead manager in a number of bank capital-raising deals.
In May, Wells Fargo raised $8.6 billion through a stock offering designed to raise more capital at the bank. The issuance translated into about $200 million in gross fees to underwriting banks, which at the time included J.P. Morgan and Wells Fargo’s Wachovia Securities unit.
You mean an investment bank made money by doing stock offerings? No way!
What is your problem with people making money? Someone has to under write deals and there are very few big enough to do some of these. And considering the amount of money they've raised to float these issue's I'd say they've earned every cent. I don't expect you to agree, but I also know you don't have a clue what is invovled in making a secondary go off smoothly. So say what you will but GS is the undisputed king of investment banking and as such they will reap huge rewards for their efforts.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
