Bank Profits and Frustrations

Daily Stat | October 17, 2012 | Topics: Economic Outlook 

4%: Decline in the secondary mortgage rate since late 2008

The Fed's cumulative quantitative easing has contributed to the decline in mortgage rates consumers face by over 2.5% points since late 2008—but an even greater 4.0% point decline in the rate banks pay to borrow. The difference between the mortgage rate consumers face and the rate banks pay represents current bank profitability in extending mortgages, but also illustrates the frustrations in seeing QE transmit into the real economy. However, going forward this 150 basis point gap represents a source of margin that banks can use to mitigate potential future losses from lowering credit standards. Illustrating again that monetary policy works with a lag, over the next 12 months this change in bank behavior could finally begin to help more households gain access to credit that currently do not and help further the long-hoped-for recovery in the housing market.

Source: BlackRock, Bloomberg, October 2012

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