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Last Week's Most Popular Stories

Last Week's Most Popular Stories
Jul 15, 2025 4:18:18 PM
The cost of funding earning assets has taken an interesting twist.  For many years the largest banks had the lowest cost of funds.  It has entirely flipped as you can see in the attached graphic from the FDIC Quarterly Profile.
We shouldn't assume the large banks are foolish.  With fed funds paying effective rates of 5.33%, what is the profit optimizing cost of funds?  Of course, it is not 5%.  But as depositors exercise their options and make wiser decisions for their best interests, the profit optimizing cost of funds is likely higher than most bankers would assume. 
We should not ignore our economics lessons where we discovered that profit is maximized when marginal revenue = marginal cost.  When marginal revenue (fed funds) was .25%, we needed to keep marginal cost at less than .25% to maximize profit.  As marginal revenue is now 5.33%, what cost of funds gives your bank a marginal cost of 5.33%?  Is it 2.5%, 3.0%, 3.5%, or higher?  Has your executive management team understood this critical truth or have some blindly clung onto the idea that the lowest cost of funds is best?
https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/timeseries/ratios-by-asset-size-group.xlsx
From www.fdic.gov



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Neil Stanley
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Original Message:
Sent: 04-19-2024 14:46
From: Rob Blackwell
Subject: Last Week's Most Popular Stories

The most popular posts among Peer Intelligence participants for the week ended April 19 discussed deposit rates, efforts to combat check fraud, and FHLB advances to troubled banks. If you missed any of these, you may check them out below. Thanks for reading.

"Will Banks Finally Have to Pay You More for Your Savings?"

"Community Banks are Fighting Check Fraud on the Front Lines"

"New Details on Rush of Home Loan Bank Borrowings at Three Failed Banks"

Did you miss our most recent Banking with Interest podcast with Mark Calabria, former director of the Federal Housing Finance Agency, and Aaron Klein, senior fellow at the Brookings Institution? Check it out here.



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Rob Blackwell
Chief Content Officer and Head of External Affairs
IntraFi
Arlington, VA
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