Skip to main content
No. of Recommendations: 1
Hawkwin,

You wrote, ... If rates are high, say 5%, then the spread between that savings rate and the mortgage rate has grown. A spread might be 4% - nearly three times as much gross profit. ...

I would point out that absolute rates have little bearing on how much a bank makes. As you said, it's the spread. You can get some indication by looking at the short vs. intermediate or long-term rates. The difference between those rates tells you something about how profitable banks as group might be going forward. When yield curves invert, banks are in trouble same as the economy as a whole.

Of course some banks like Bank of America manage to get people to deposit cash at near zero rates even as rates have been rising. The lower these deposit rates are the less impacted by narrowing spreads the bank is, because a lot of the money a bank invests comes from these deposits. It's also why right now while spreads are so narrow that larger banks are still pretty healthy; but it's almost certainly putting a strain on smaller, local and regional banks that have to offer competitive deposit rates.

- Joel
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.