Banks used to provide relief from inflation. Now they profit big

By Shubham Saharan, Bloomberg

The last time inflation burned hot, consumers could put money in the bank and watch it grow like the prices on store shelves, easing much of the pain.
Not this time — and that’s stoking profits for US lenders.

The gap between what banks pay depositors and what they earn from lending money to borrowers hasn’t been so wide in the past half-century, with the average savings account paying a skimpy 0.06%. Many banks are telling shareholders that so-called deposit betas — measuring how quickly deposit rates rise in the wake of Fed hikes — will remain advantageous for banks in the months ahead, as they’re not yet feeling much pressure to pay savers more.

Betas are now the buzziest bit of jargon across the financial industry. The phrase was invoked more times during Bank of America Corp.’s analyst briefings in the past two months than in the prior two years combined. This month, the lender’s executives predicted interest income may climb by as much as $1 billion in the third quarter from the second as they stay “disciplined” in what they pay customers.

“Our consumer-banking segment continues to see good momentum,” Chief Executive Officer Brian Moynihan told analysts July 18. “We grew loans at the fastest quarterly pace in nearly three years.”

The reasons that savers are getting so little relief are myriad, starting with the Federal Reserve, which waited until inflation was strong before it began raising interest rates from longtime lows. From there, it takes time for deposit rates to rise too. The result is pain: The consumer price index jumped 9.1% in June, while banks including JPMorgan Chase & Co., Bank of America and Wells Fargo & Co. offered deposit rates as low as 0.01%, according to their websites.

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