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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
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