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Fed's cut to add pressure on banks' margins

Discussion in 'The Economy' started by Tropo, 17th Dec, 2008.

  1. Tropo

    Tropo Well-Known Member

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    Fed's cut to add pressure on banks' margins

    NEW YORK (Reuters) - The U.S. Federal Reserve's latest rate cut may be the cruelest yet for banks.
    The Fed lowered rates by at least three quarters of a percentage point on Tuesday, one of its most dramatic moves yet in a bid to jumpstart a recession-bound economy.
    But the Fed easing means that, while the rates at which banks lend will decline, the rates at which they fund themselves cannot fall much further. That, in turn, means any decreases in lending rates -- including the latest -- only squeeze margins.
    But stock investors did not seem too alarmed on Tuesday as they sent bank shares up 10 percent, as measured by the KBW Banks index .BKX, on optimism the move would help banks by boosting the economy.
    But some investors wonder if the markets are taking into account how painful this move could be for banks.
    more ... Fed's cut to add pressure on banks' margins | Reuters