18 - 4 = Bonanza for Banks

Seeing bank credit card rates stuck at more than 18% when money in the bank is earning less than 4% interest just doesn't make sense unless you're a banker. Even Federal Reserve Board Chairman Alan Greenspan is puzzled.

The Fed has cut interest rates 23 times in the last three years. Banks have been quick to drop rates they pay on deposits but reluctant to reduce rates for consumer loans. The gap between what banks charge customers for loans and what banks pay on deposits is wider than ever. That means banks are making money, a nice reversal of massive loan losses that plunged the industry into its worst crisis since the Depression.

Meanwhile, bank lending is down sharply. Even if businesses and consumers are willing to pay the high rates, they are finding it tougher to qualify for loans.

In an unusually frank response to a question during a House committee hearing, Greenspan said banks had been slow to pass on rate cuts to customers. He suggested that bank policies are stunting a recovery and making it more difficult for the Fed to influence the economy. Greenspan also noted the banks' continuing hesitancy in lending.

Consumers, shouldering old debt, are scared of borrowing at current rates given the uncertain economic and employment outlook.

The caution of lenders and consumers is understandable. At least both finally have sobered up from the credit binge of the 1980s.

Unless banks begin to push down loan rates to help spur consumption, the nation could be facing a triple-dip recession.

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