WASHINGTON–The Federal Reserve has quickly boosted rates during 2022, sending loan rates and especially mortgage rates soaring. So, why haven’t savings rates followed, one senator wants to know.
During a Senate hearing titled “Oversight of Financial Regulators: A Strong Banking and Credit Union Systems for Main Street,” Sen. Jack Reed (D-RI) noted the current Fed Funds rate target range is 3.75% to 4%, but the average rate being paid by banks on savings accounts is .2%, and at the largest banks it is .1%.
Reed asked FDIC Acting Chairman Martin Gruenberg why that is and when will savings rates increase.
“It’s pretty clear that the banking industry is trying to take advantage of rising interest rates and on the credit product side, to increase earnings,” Gruenberg replied. “It’s fair to say that what (is being paid) out on the deposit side has lagged. We'll see if competitive pressures within the industry have any impact on what they…offer on deposit account, but right now there's clearly a lack of that.”
Concerns over Rent-A-Banks
Reed followed up by asking about rent-a-bank-charter schemes being used by some lenders to offer loans at usurious rates and what is being done to stop it.
“When the bank partners with a third party and the third party is providing services on behalf of the bank, including credit products, as a supervisory matter the offering of services by the third party is treated as if the bank itself is offering those services and products and the bank is supervised accordingly,” said Gruenberg. “We have a number of institutions that are utilizing partnerships to benefit from the banking relationship. I will say we are taking a close look particularly at the lending activity going on to ensure that the lending activity is being appropriately underwritten and then it's based on the borrower's ability to pay, as well as that consumer protection requirements in terms of disclosure and transparency are being complied with. This is a matter of active attention.”
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