Banks Face Scrutiny on Profits

Bankers are finding themselves in the same position as oil and gas companies in terms of scrutiny... not because of bad practices but because of making too much profit.

Banks are beginning to benefit from high interest rates that distance how much they are paying savers versus charging borrowers. Inevitably, profits attract politicians.

This time around, bank scrutiny is a global trend. Regulatory pressure could soon follow, although banks may be fortunate in the United States in particular with a split congress. In other countries in Asia, Australia and Europe, banks are already under scrutiny for interest rates and banker bonuses, even in traditionally more capitalist countries such as South Korea.

The main focus has been a disconnect between mortgage lending interest rising while deposit rates not moving in tantum. In Australia, two of the largest four banks have a home loan rate more than 4% higher than on savings accounts drawing attention from the top of Australia’s government.

Most banking clients are not as aware that interest rates on their savings accounts have not moved up, as it is not the primary driver of where consumers choose to park their money at this time. Also, most banks have plenty of cash due in part to the pandemic, so there is less insensitive to pass the interest rates on to customers to drive deposits.

Still, banks are experiencing nontraditional competition and should take note of competitive rates. Goldman Sachs Group Inc’s Marcus accounts are now offering interest accounts at 3.75% which is close to the top of the charts.

Higher interest on savings accounts may prove to be a long term competitive advantage.