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发帖数: 1980 | 1 The Fed announced $400 billion in Operation Twist through the end of June 12
. The idea is that lower long-term rates might lead to more borrowing and
economic activity.
But for bankers, who are already struggling with low interest rates on loans
and tepid loan demand, the twist option could further dent already-weakened
profits. That is because lower long-term interest rates would result in
contracting net interest margins for banks—essentially, the profit margin
in the lending business—at a time when their revenue is growing slowly, if
at all. Banks would earn less on loans and investments, and might end up
making fewer loans as well.
"Ouch" is how one executive at a big retail bank described the prospect of
Operation Twist. (Bankers typically don't publicly comment on Fed policy
given the central bank's role as a bank regulator.)
A twist would seek to flatten the yield curve, or the slope between long-
and short-term rates. For banks, the steeper the yield curve the better,
because bankers borrow short-term funds to make loans that have much longer
terms.
Even without the Fed doing the twist, bank profit margins from loans are
already under pressure. The Federal Deposit Insurance Corp. reported that
second-quarter net interest margins declined at nine of the 10 largest banks
. Overall, half of all banks reported contracting margins, the FDIC said:
Revenue "was lower than a year ago for the second quarter in a row" because
of "lower asset yields," despite a 2.8% rise in commercial and industrial
loans.
To be sure, banks might have some options to counteract the twist. "Banks
could try increasing deposit fees to offset the actions, this would make
effective rates less than zero," said Frederick Cannon, the director of
research and chief equity strategist at Keefe, Bruyette & Woods Inc.
Indeed, banks have so far been able to lower deposit rates, particularly on
maturing certificates of deposits made at the height of the financial crisis
, to somewhat offset declining interest rates on loans.
But further declines in loan pricing would have painful consequences; banks
already offer 30-year fixed-rate mortgages at 4.125% interest, a historic
low.
Mr. Cannon said banks would eventually be able to charge higher rates if
lower interest rates generated more demand for loans and a stronger economy.
"Of course, if the Fed is successful in supporting a faster return to
economic growth, that would have other benefits," said the retail bank
executive who cited an expression of pain at the prospect of a twist.
But some economists have doubts. Banks say they are having trouble finding
enough credit-worthy borrowers to make use of their deposits. Instead, they
are buying Treasury securities, an investment that would yield less under "
operation twist."
The U.S. economy "is in a bit of a liquidity trap," meaning it is in a
position where the Fed's monetary policy has little impact on the economy,
said Scott A. Anderson, a senior economist with Wells Fargo Securities. "
Money isn't getting out to Main Street USA." No matter how attractive rates
on loans are, "demand is going to be weak because there isn't enough
confidence" in the economic recovery, Mr. Anderson said.
If yields fall due to a twist operation, bankers might even curb lending if
demand for loans remain weak. But if the Fed succeeds in stimulating
borrowing, loan "volume will win the day," he said.
Richard J. DeKaser, the deputy chief economist at Parthenon Group, who, as
chief economist at National City Corp. helped the regional bank with its
interest-rate management before it was bought by PNC Financial Group Inc.,
said making home purchases more attractive by lowering long-term rates will
have a positive impact on the economy and banks.
But he said the Fed may not need twisting to get mortgage rates down—they
are already falling |
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