US banks have profited immensely from the Federal Reserve’s “higher for longer” interest rate policy, according to data from the Federal Deposit Insurance Corporation (FDIC). Over the past two and a half years, banks in the US have reportedly earned over $1 trillion in additional revenue thanks to the high interest rate regime.
Despite expectations that banks would pass on a significant portion of the higher interest rates to their customers, this did not materialize. In fact, during the second quarter of 2024, when the Fed was paying banks 5.5% in interest on deposits, savers were only receiving an average annual rate of 2.2%. JPMorgan Chase customers were earning a mere 1.5% in interest, while Bank of America depositors were getting 1.7% annually.
As a result, banks managed to pocket $1.1 trillion in extra revenue, representing about two-thirds of what the Fed paid in interest during the same period. On the other hand, savers only received $600 billion in interest payments.
Following the Fed’s recent decision to lower interest rates, some major banks wasted no time in further reducing the interest rates paid to their wealthy depositors. Both JPMorgan and Citi announced 50 basis point cuts in line with the Fed’s actions.
Overall, the disparity between the interest rates paid to depositors and the profits reaped by banks highlights the impact of the Fed’s monetary policy on the banking sector. Despite the potential benefits of higher interest rates for savers, it seems that banks have prioritized their own profitability in the current economic environment.
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