Bankers Scolded Over the Gap in Rates Charged and Paid

Bankers were raked across the coals Thursday, accused by consumers and a House lawmaker of jacking up loan rates while keeping a lid on interest rates paid to depositors since the Federal Reserve Board tightened its grip on credit.

But a close reading of the statistics suggests the opposite is true, one analyst said.

Rep. Joseph Kennedy (D-Mass.) charged at a hearing of the banking panel he chairs that banks--through their lending rates--have passed along to consumers the full brunt of the four rate increases engineered by the Fed since February.

The Fed has boosted short-term rates 1.25 percentage points in a bid to head off inflation, and Kennedy said banks are “giving themselves a generous markup in the process.”

“Not only are (consumers) paying more for loans--they’re also receiving less on their deposits,” Kennedy said.

But Robert Heady, publisher of Bank Rate Monitor, says rates on certificates of deposit--a popular place for consumers to park money--have risen faster than rates on auto loans, credit card loans and other personal loans.

“Being from Massachusetts, I don’t want to rain on Joe Kennedy’s parade. But the thesis doesn’t compute,” he said in a phone interview from his office in North Palm Beach, Fla.

“If anything, the banks have been under pressure to contain personal loan rates because of weak loan demand,” he said. “When farms can’t sell their apples, they don’t raise prices.”

Heady, whose weekly newsletter tracks bank interest rate trends, said rates on one-year CDs are now at 3.85%, up from 3.08% in early February, before the Fed engineered its first rate hike.

That 0.77 percentage point rise exceeds the increase in rates on new car loans, which have increased to 8.35% from 7.91%--a gain of 0.44 percentage point.

Heady said rates on money market accounts have risen less than CD rates because banks are under less pressure to increase money market rates to attract funds.