Banks earned $1 trillion windfall during Fed's high-rate period

"At the end of the second quarter, the average U.S. bank paid depositors an annual interest rate of 2.2%, according to Federal Deposit Insurance Corporation data. This is higher than the 0.2% rate two years ago but well below the Fed's 5.5% overnight rate. JPMorgan Chase and Bank of America reportedly paid 1.5% and 1.7% on average, respectively. Those lower payments to depositors generated roughly $1.1 trillion in additional revenue, about half of total bank income over the period, the Financial Times' calculations indicate."

"The Fed recently cut its main policy rate by half a percentage point with some banks then moving quickly to pass the cuts on to depositors. Hours before the reduction, Citi informed private bank clients that their rates on accounts paying 5% or higher would fall by half a percentage point if the Fed acted, according to a source familiar with the matter who spoke with the Financial Times."

"Because of the rate cut, banks will certainly have the ability to reduce deposit costs, Chris McGratty, head of U.S. bank research at KBW, told the Financial Times. The degree of aggressiveness will, I think, vary bank to bank. JPMorgan said it aimed to ensure a fair and competitive rate. Citi and Bank of America declined to comment, according to the report."

At the end of the second quarter the average U.S. bank paid depositors an annual interest rate of 2.2%, higher than 0.2% two years earlier but well below the Fed's 5.5% overnight rate. Major banks paid lower averages—JPMorgan Chase 1.5% and Bank of America 1.7%—allowing banks to retain a substantial share of the rate uplift. Calculations indicate those lower depositor payments generated roughly $1.1 trillion in additional revenue, about half of total bank income over the period. The Fed cut its policy rate by 50 basis points and some banks moved quickly to lower customer rates, with responses varying by bank and client.

Read at www.housingwire.com