Lowest Ever Lending Cost for Banks

by Dan Geller, Ph.D.

In 2011, banks paid only $016 in interest expense for every $1 in interest income
from loans compared to $0.51 in 2007.

SAN ANSELMO, Calif.– The latest analysis from Market Rates Insight (www.marketratesinsight.com) shows that interest expense banks are paying for retail funds is now the lowest ever. In 2011, banks paid an average of $0.16 in interest expense on deposits for every $1 they earned in interest on loans. Conversely, in 2007, prior to the last recession, banks paid an average of $0.51 in interest expense on deposits for every $1 they earned as interest on loans.

Total interest income from loans at FDIC insured institutions in 2007 was $725 billion, and total interest expense paid for deposits amounted to $372 billion, which is a cost of $0.51 in interest paid for every $1 of interest earned. In 2011, total interest income was $507 billion, and total interest expense paid for deposits amounted to $84 billion, which is a cost of $0.16 in interest paid for every $1 of interest earned. The 2011 cost of $0.16 is the lowest ever since the FDIC made such figures available in 1992.

“One good reasons banks can offer historically low rates on mortgages and personal loans is their historically low cost of funds” said Dan Geller, Ph.D. Executive Vice President at Market Rates Insight, “if anyone was looking for a good reason to take advantage of such historically low-rates, this is it.”