The first quarter call report data results came out recently with some interesting data. Bank industry assets leapt to $16.293 trillion, adding an additional $325.59 Billion (2.04%) to financial institutions’ portfolios. This the largest increase since the first quarter of 2008, which encompasses a span of 32 quarters. A third of the increase in assets went to cash. So not only are financial institutions lending, they also have sizable cash reserves available. Some would consider this good news, but a closer look at the details portends what may be looming in the future.
I began this blog series asking the question “How can banks offer such low rates?” I outlined a simplistic view of loan pricing as:
For quite some time now, the banking industry has experienced a flat funding curve. Very small spreads have existed between the short and long term rates. Slowly, we have begun to see the onset of a normalized curve. At this writing, the five year FHLB Advance rate is about 2.00%. A simplistic view of loan pricing looks something like this: