SAN ANSELMO, Calif. (January 25, 2010) – A new analysis from Market Rates Insight (MRI, www.marketratesinsight.com), a leading research firm that tracks rates for deposits, loans, and fees for financial institutions, found that the tax on the wholesale funding of “big banks” proposed by the Obama administration will increase the cost of funds for all other banks. The tax will force “big banks” to raise needed capital through the retail deposit market. However, in order to raise large amounts of capital in a short time, the “big banks” will have to be more aggressive in their deposit pricing, which means higher interest rates.
The latest analysis by Market Rates Insight shows that there is a 70 percent probability that all other banks will follow the lead of the “big banks” and raise their deposit interest rates within one week in order to protect their market share and deposits from shifting to the “big banks.” As a result, the smaller banks, which are not being taxed directly, will incur a higher cost of funds expense that they could have avoided if they did not have to respond to the rate increase by the “big banks.”
In January of 2010, the administration proposed a 15-basis-point “big bank tax” be levied against bank assets minus Tier 1 capital and domestic deposits, The proposal targets about 34 of the largest commercial banks – those with $50 billion or more in assets. The proposed “big bank tax” will be on wholesale funding, which means this type of funding will become more expensive for the banks.
The analysis of the association between the deposit rates of the “big banks” and all other banks found there is a linear relationship between the average APY of the “big banks” and the average APY of the smaller banks. This means that any fluctuation in deposit rates on the part of the “big banks” triggers a similar response by all other banks. It also shows that smaller banks follow the rate changes of the “big banks” with a one week lag time from the rate-change occurrence and that smaller banks price higher than “big banks” by an average of 34 bps, and a range of 0.8 to 62 bps.
“If the “big-bank tax” becomes a reality,” said Dan Geller, Ph.D. Executive Vice President at Market Rates Insight. “it is sure to have unintended consequences that will impact all banks and the public. This proposed tax will create a chain reaction of events that will result in increasing mortgage rates and higher personal loan rates, and make tight lending market even tighter.”
The complete analysis can be viewed on the Market Rates Insight website at this location: http://www.marketratesinsight.com/docs/sa1.25.10.pdf.
About Market Rates Insight
For more than two decades, Market Rates Insight (MRI) has been helping subscribers price with precision by providing banks, thrifts, credit unions, and other financial institutions with accurate market intelligence on deposits, loans, and fees. MRI uses deposit surveys, mortgage and consumer loan surveys, fee and feature studies, scanned ads, new product alerts, and market share and money fund reports to give subscribers the intelligence they need to profitably react to emerging trends. MRI’s products include customized, web-enabled market research tools that report on rates, as well as online searchable databases, gauges, alerts, and dashboards that aggregate key client data to provide real-time views on how they stack up against market competitors.
Market Rates Insight is located in San Anselmo, California. For more information, see www.marketratesinsight.com.
Contact:
Dr. Dan Geller
Market Rates Insight
415-448-8813
Dan.Geller@MarketRatesInsight.com
Tom Woolf
Market Rates Insight
(415) 259-5638
tom.woolf@marketratesinsight.com |
Dr. David Kleiman
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