Posts Tagged ‘banks’

If You Really Think Bernanke Will Run Out Of Bullets, You Need To Wake Up#comments

July 23, 2010 Leave a comment

Has the market forgotten the alphabet soup of programs created by the Fed led by this Chairman 18-24 months ago?  The Europeans have not forgot them, they are the foundation for the ECB’s 2010 playbook.  Here in the U.S., almost all of the emergency measures have been wound down.  Some worked, some did not work.  The point is the only thing that limits the Federal Reserve’s options is Ben Bernanke’s imagination.

Really though, what are the options?

  1. Reduce the interest rate of 0.25% on excess reserves hoping that commercial banks will start lending captial
  2. Jawboning… not really sure how that would work – point an AK47 to the bank CEOs
  3. Buy treasuries and bonds to target interest rates further into the curve i.e. fix interest rates for terms longer than 3 months…
  4. Buy more assets junk a la ABS, MBS, CDOs, etc

The Federal reserve might be doing a great job at increasing the supply of credit BUT how would it stimulate consumer and business demand for credit? Clearly low interest rates are not enough!

via If You Really Think Bernanke Will Run Out Of Bullets, You Need To Wake Up#comments.


Average Prime Rate Spread by Decade

June 10, 2010 1 comment

Yesterday I showed the historical difference between the Prime Rate and the Bank of Canada rate going back to 1935… that chart is quite impressive and clearly shows the low interest rate era we are living in. To draw some conclusions from that chart, I created the same chart but averaged the rate difference by decades and the numbers are quite interesting…

The Prime Rate in the current decade is 0.25% higher than the past 4 decades! What does this mean to you? Simple, higher interest costs if you have a variable rate mortgage or loan or line or credit.

Decade Average Rate Spread (%) 1930s 2.62 1940s 2.87 1950s 2.16 1960s 1.23 1970s 1.16 1980s 1.21 1990s 1.24 Current 1.55
Historical Spread between Prime Rate & Bank of Canada Rate by Decade since 1935

Source: Bank of Canada

Are Canadian banks gouging consumers & businesses?

June 8, 2010 3 comments

For the last decade, the spread between Bank Rate (top end of the Bank of Canada operating band) and the Prime Rate (the rate banks charge their best customers and the rate used as benchmark for almost all loans except fixed rate mortgage) has been about 150 basis points (bp) or 1.5% but since Dec 2008, the spread has increased to 175 bp or 1.75% – see chart below. Prime Rate affects almost all business loans, line of credit (personal, secured, HELOC, etc) and variable rate mortgages.

10 yr Spread_between_prime_rate_&_bank_rate

Source: Bank of Canada

What determines this spread and why is it still at decade highs when the Big Five Canadian banks have hit record profits in Q1/Q2 2010?