Tuesday, March 16, 2010

Fed Funds Rate Stays at 21 BPS

Michael Dunton from Mt McKinley bank emails:
Effective Fed Funds rate still 21...

But the 4 week T-bill went up 2 bps to 13.5 bps.
And here is Michael's "banker's view" on why low interest rates are a problem for bankers and the FDIC:
The FDIC has to look at this and start thinking that this low rate environment will do a number of things:

...finish off more banks that are on the ropes (they can't earn anything)

...cause other banks to take undue risks in lending (haven't we been here before?)

...force banks to buy (unwisely) low rate investments to stay in business and earn some money, and take a heap of interest rate risk that could kill off a bunch of them (or at least create TARP 2) when rates eventually rise.

I always wondered what a depression felt like. Be careful what you wish for, the old man used to tell me...

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