A debate is brewing about whether rising rates mean banks must pay more to hold onto deposits from city and county governments — and whether they are worth it. Some would say no question on both counts, while others say it all depends on the financial strategy of the client and how badly the bank needs that client.
As U.S. banks were tallying up the billions of dollars in extra profits they'll reap from the sweeping tax cuts signed into law by President Donald Trump, they were quietly delivering unwelcome news to local governments: The interest rates on their loans were about to go up.
Bank stocks tumbled on Monday amid a wider sell-off as investors' concerns mounted that wage growth could lead to inflation, higher borrowing costs for businesses and a slowdown in Fed rate hikes.
Though business owners are more optimistic about the direction of the economy since the tax law was passed, it's doubtful their borrowing will increase meaningfully until they see more signs of more robust growth, bankers say.
The Fed said Wednesday that the system paid roughly $80.2 billion to the Treasury in 2017, a 13% drop from a year earlier because of an increase in interest payments to member banks for reserve balances.
Sen. Elizabeth Warren, D-Mass., was the only member of the Senate Banking Committee to oppose the nomination of Federal Reserve Board Gov. Jerome Powell to lead the central bank.