Lending Profits Differ Greatly by Bank

Rising interest rates should ostensibly benefit all banks taking deposits. But, while large consumer institutions benefit, higher-risk banks have been hammered down

Lending Profits Differ Greatly by Bank

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All bank lending profits are not equal.

Rising interest rates from the Federal Reserve’s recent moves should ostensibly benefit all banks taking deposits. But, while large consumer institutions like Bank of America, JPMorgan, and Chase & Co. posted higher lending profits in the third quarter, other banks with a more risk-oriented customer base have been hammered down.

SVB Financial Group, the parent of Silicon Valley Bank, has seen its stock slide more than 50% over the last three months. Silicon Valley Bank’s clientele is overwhelmingly riskier in nature with many biotech, software and other tech companies making up its client base. Venture investing, which is core to SVB, has slowed significantly as all investors have broadly fled risk. Also, as these companies burn through cash, their deposits were drained and were not quickly replenished from new rounds of fundraising

‘Boring’ Banking Benefits

Total deposits declined in the third quarter to $106 billion banks industrywide, according to Fed data. However, according to The Wall Street Journal, large banks “were so flush with deposits that they were able to keep their costs low while increasing what they charge on loans.” Banks that have a mix of consumers are less likely to compete by offering higher rates.

Bank investors and analysts are closely watching deposit flows and how they effect profits. As WSJ reported, “Plain-vanilla banking is somewhat in style,” according to Barclays banking analyst Jason Goldberg.

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