Higher rates and the banks - depositors to be heard from as well

|By:, SA News Editor

It's been commonly assumed for years that a Fed rate hike cycle would surely lead to boosted margins and profits at lenders. Sure enough, it's taken some banks only minutes to boost lending costs after recent Fed moves, but depositors have seen little benefit.

But banks are under pressure to compete for deposits like never before, and - with Q1 earnings season about to get underway - analysts are going to be looking for guidance on deposit costs.

Incoming U.S. Bancorp (NYSE:USB) CEO Andy Cecere (he's currently COO) says many are underestimating the speed at which banks will have to boost their "deposit beta" - the share of Fed rate hikes that get passed along to depositors.

For JPMorgan (NYSE:JPM), it's modeling more than a 50% deposit beta vs. about 45% during 2004's rate hike cycle (that's still enough for the Bank of Dimon to reap $11B more in revenue from just a modest series of Fed hikes).

Analyst Marty Mosby says banks so far have been slow to increase deposit rates as they recover from years of ZIRP, but the next rate hike should bring with it a lot more movement.

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