Wolf Richter, Business Insider, Banks are threatening more layoffs if the Fed doesn’t hike, here.
Banks try to make money in a myriad newfangled ways. But the classic way is on the spread between the interest they pay on deposits and the interest they charge on loans. A wide spread fattens their profits. But these spreads have become paper-thin.
Banks can get all the money they need from the Fed at near-zero cost. They don’t need depositors, and there is no competition for depositors. So, in one of the biggest scams in history, depositors get next to nothing from banks around the country. And the banks’ cost of money is near zero.
But there is desperate competition for making loans in an environment when bankers and their customers, especially big corporate customers, wade up to their nostrils in Fed-engineered liquidity. This mad frenzy pushes down lending rates (along with bond yields). And the banks’ spreads and profit margins have been squeezed.