Net interest margins came under severe pressure in the third quarter as the yield curve flattened and banks absorbed a surge of deposits. Some national giants and regionals appear to have benefitted as customers rolled over certificates of deposits at lower rates. Conversely, banks with large portfolios of high-yielding mortgage bonds may have suffered the biggest drops interest margin declines.
The tables below, which can be resorted by clicking on any of the column headers, display key indicators on vulnerabilities and opportunities as rates shift. For example, institutions with large securities portfolios that have produced high yields could suffer sharper declines in interest income than competitors. The data is for the second quarter.
Source: Financial Information Systems LLC
Note: Bank holding companies where deposits were less than 30% of assets at June 30 were excluded. Also excluded were a credit card focused subsidiary of Barclays PLC and Franklin Resources Inc., an investment management company, and the trust and custody banking companies Bank of New York Mellon Corp., State Street Corp., and Northern Trust Corp.
On the other hand (silly expression as it is), if the economy bottoms or stagnates there will be no dividends at all - maybe ever. And if the hedges go bad the investors and FDIC suffer.
There is no easy answer. Glass Steagall stopped much of this type of behavior but caused other problems for the industry. Perhaps if there could be a re-evaluation of want Banks should be doing, the issue would disappear. The core issues really are 1. WHAT IS A "BANK"? & 2. WHO WINS - STOCKHOLDERS OR DEPOSITORS
Richard Isacoff
rii@isacofflaw.com