As we’re all well aware by now, once Trump was elected on November 8th the Fed suddenly decided it was no longer necessary to prop up asset prices in the United States with artificially low interest rates.As such, they’ve embarked on their first rate-hiking spree since the last one ended just over a decade ago.
Meanwhile, in light of the fact that the Fed has raised rates by 75bps over the past 6 months, we recently wondered aloud justhow long the big banks could continue to stiff Americans out of interest payments on their deposits.As the Wall Street Journal points out today, despite three Fed rate hikes over the past several months, the average rate paid on deposits at the 16 largest banks in the U.S. has risen a paltry 10 bps.
Meanwhile, with nearly $12 trillion held in deposit accounts at U.S. commercial banks, each 25bps of foregone interest is costing depositors about $30 billion a year, all of which is flowing straight to the bottom line of the large banks.
In the end, we concluded that the banks would continue to suppress deposit rates for as long as their customers continued to ignore the fact that they were getting shafted but that, over the long haul, math and greed would prevail and depositors would demand higher rates.
Alas, it seems as though the “long haul” that we predicted has arrived well ahead of schedule…at least for business customers anyway.As the Wall Street Journal points out today, corporate customers are starting to demand higher rates on deposits and, for the most part, the large banks are acquiescing.
Consumers are giving banks a pass when it comes to shopping for higher interest rates on deposit accounts. Businesses, on the other hand, are becoming more demanding.
With short-term interest rates on the rise, corporate depositors are seeking bigger payouts for their deposits, and big banks have started capitulating.
The reason: Small rate increases are often worth just pennies to many consumers, but they can translate into meaningful dollars on large corporate deposits of millions or even billions of dollars.
And companies have greater leverage with banks since in many cases they also bring in lucrative investment banking and trading business.
“The jig is up,” said James Gilligan, assistant treasurer at Kansas City, Mo.-based power company Great Plains Energy Inc. He said many companies, including his, have negotiated better deposit pricing with banks where they also borrow. Treasurers who have the flexibility to move their money are also seeking out higher rates.
