If the banks gives out 3% to depositors and 6% to borrowers, then why would they care if the interest rate went to any amount? If it went to 27% then they could get 30% under this scenario and they’d make the same profit. Do they prefer lower rates only because of lower default risk?
More From 911 loan modification
- Any Mortgage Banks You Could Suggest For Lower Interest Rates?
- Can Anyone Explain Why Gold Has Dropped While The Federal Reserve Continues To Lower Interest Rates?
- How Could The Fed Increasing Interest Rates Lower Unemployment?
911 loan modification Recommends
- Today’s Mortgage Interest Rates And The Health Of The Economy (Economy Pulse)
- How Do You Get an Online Cash Advance? (The Credit Courier)
GD Star Rating
loading...
loading...
Related Posts:
Tags: Banks, Borrowers, Default Risk, Depositors, Interest, Interest Rate, Interest Rates, Lower, Prefer, Rates, Same, Spread, Stays, Their
One Response to “Why Do Banks Prefer Lower Interest Rates If Their Spread Stays The Same?”
Leave a Reply
Filled Under: Mortgage Loan Modification
November 4th, 2009 at 10:38 pm
You’ve just answered your own question, 30% divided by 27% give a profit margin of 11.1%, 6% divided by 3% is 100% profit margin. Of course it has nothing to do with the bid/ask spread as to why banks like lower rates. It means that banks can borrow at a cheaper rate and therefore make more profit on their investments or pay less interest on their liabilities. (and a whole host of other macro-economic reasons that would take several text books to explain
loading...