The Fed Is Boosting Small-Bank Profits, But Dangers Lurk
A tool to ease banks’ losses on long-term bonds has become a nice little earner. Still, the problem debts remain.
Blown Up: Greg Becker, former chief executive officer of Silicon Valley Bank.
Photographer: Al Drago/Bloomberg
The peak in US interest rates isn’t great news for big banks like JPMorgan Chase & Co. — it means their run of revenue gains from net interest income is coming to an end. But for smaller banks it will be a big relief. They’ve been battling all year against the effects of the Federal Reserve’s hikes, which left many with large unbooked losses on long-term bonds they own and forced them to pay through the nose to retain deposits.
These pressures brought disaster to some: Silicon Valley Bank and three others blew up in March, sparking a mini-crisis as depositors kept moving their cash to bigger, safer banks and higher-yielding money market funds for weeks. Smaller banks did claw back deposits over the course of the year, but they had to woo customers with higher-yielding time deposits, which squeezed their profits. Investors will be hoping for signs of improvement in banks’ fourth-quarter results this month.