This page has been archived and commenting is disabled.
Interest Rate Wealth Transfer
Getting a decent interest rate on my Savings and Money Market Accounts has been a constant source of amusement and frustration during the past 12 months.
In the last year alone I have moved my cash savings from BB&T to Valliance Bank to Bank of the Ozarks to ViewPoint Bank and finally to Golden Bank. I'm currently getting 1.67% on my money at Golden, however, it's down from 1.81% last month.
Since I study banks for a living I thought it would be amusing to see just how much money savers are losing to ever decreasing yields.
The following chart shows all U.S. Banks Interest Expense (domestic deposits) divided by Interest Bearing Deposits:
This would explain all the letters over the course of the past year explaining why my savings rate is going down again. Now, let's look at the absolute dollars involved:
During the 3rd Quarter of 2010 banks paid out $14.5 billion in interest expense to interest bearing account holders. Note that 3 years ago that number was $51.1 billion in the quarter.
This is a $36.6 billion per quarter difference or another $146 billion in savings per year that banks are allowed to put towards improving their income statement. I definitely see the value in low interest rates to the economy now.
Let's look at the Interest Expense Ratio by Asset Size:
The big banks have an enormous advantage in this area. It's also why I prefer to bank with progressively smaller institutions.
To learn more about this and other bank metrics feel free to visit www.BankRegData.com.
»
- advertisements -
is this a move toward shariah, or a sign of a failed economy? whoops! maybe there's no difference.
http://covert2.wordpress.com
Just because people choose to follow certain religious prcatices when it comes to their food consumption does not mean the US is moving to Sharia law. Jews have been doing this for years but nobody said a word about it.
Thats why many people are moving thier money overseas specially foreign-born US residents. ShityBank kept on lowering my rates on a weekly basis until I had enough. I'm getting 4.75% on average on CDs, TAX FREE
I am making .85% at my local credit union. I am paying 3.25% adjustable for my mortgage. That said, I am paying off the 3.25 with my savings and thus paying myself a higher rate. Point being they want you and force you to put that money into the casino or else get duke and like it.
Good thing we have the FDIC to encourage someone who studies banks for a living to pick the highest yielding/risky bank to put his money in. If it doesn't fail, the extra interest is his. If it does fail, the cost falls to us remaining taxpayers. And of course FDIC encourages capital destruction by encourage precious capital to be given to failing banks.
The term "moral hazard" is not strong enough. I think a better is "perverse incentive".
The Texas Ratios for each bank:
BBT: 36.13
Valliance: 77.55 (2 blocks from my house)
Bank of the Ozarks: 15.53
ViewPoint Bank: 7.73
Golden Bank: 55.69
I'm hard pressed to see how this comprises the highest yielding/riskiest bank scenario you claim. Would you prefer I chose WFC at 45.03, JPM at 35.70, BAC at 32.70 or C at 23.77?
Additionally, if I understand it correctly, the FDIC insurance on deposits comes from assessments to the banks themselves and not the taxpayer.
Interesting piece. This really demonstrates how the Fed has subsidized the TBTF cost structure. This is akin to the US Government paying for all the steel used by GM in the production of cars. The TBTF are being given a taxpayer gift yet they continue to rape the US consumer.
I guess it would be silly of me to use the favorite catch phrase of this site, but:
GOLD BITCHEZ!!
or, if you're into Robert A. Heinlein:
SILVER, SLITCHEZ!!
The other reason for this is that larger banks provide larger branch networks as access points for customers. This ubiquity is provided at a cost to the customer in the form of lower interest rates paid. Nothing sinister there - has been this way since consolidation has been going on.
That said, this is a good reason many older savers go to smaller community banks - they get more bang for their buck. If these banks bolster their online services, we can all flee the large banks once and for all.
Nah, nothing sinister there at all. It's as economically rational as slavery and Indian reservations.
This is a $36.6 billion per quarter difference or another $146 billion in savings per year that banks are allowed to put towards improving their income statement. I definitely see the value in low interest rates to the economy now.
Which the Fed intended and understood when the went with ZIRP and maintain it.
Actually, the original poster is only examining one side of the equation - borrowing costs for the banks and time deposits.
On the lending side, banks will be experiencing reduced cashflows because of lower longer duration interest rates.
It is the spread between lending long and borrowing short that matters.
I still agree with the general assertion on a qualitative basis, as shorter duration costs have experienced a greater decrease than longer term lending rates.