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That's insanely unrealistic in the near zero interest rate era of the past decade and merely a really terrible idea with more normal rates. Banks have some set
by JustLurking2022 4y ago
That's insanely unrealistic in the near zero interest rate era of the past decade and merely a really terrible idea with more normal rates.
Banks have some set of relatively fixed cost, in terms of systems and staff. In a low rate environment, there's virtually no margin to be made on short term lending. Stretching the duration for higher yield is the only way to get margin to cover expenses.
Even in a high rate environment, most of a bank's reserves tend to be short term - savings accounts, 1 year CDs, etc. The things people want to borrow for (e.g. houses, cars) tend to have a longer time horizon to pay off. So if you want banks to actually make those kinds of loans, duration matching doesn't work.
- recursivedoubts 4y agoThat's right. Banks would have to charge fees for the services they provide, or become more efficient, or both. They certainly would become less of a profitable and shrink as a percentage of the economy. Which is good: smart folks would be incentivized to go into things like manufacturing and research, and produce actual value.
- JustLurking2022 4y agoYou think banks would become less profitable by charging fees? Retail banking is not some wildly lucrative enterprise, generally speaking - it's the boring, stable-ish segment of finance. They're gonna make roughly the same margin, whether through fees or spread.