Banks Under Fire for Exploiting Higher Interest Rates to Enrich Executives and Shareholders

Strategic Insights -

United States Senator Jack Reed (D-RI) has written to six major banks, including Wells Fargo, JPMorgan Chase, Bank of America, Citigroup, U.S. Bancorp, and PNC, accusing them of exploiting higher interest rates to benefit their executives and shareholders, rather than ordinary Americans whose deposits provide the funding necessary for those banks to operate. The senator argues that the banks are charging customers much higher interest rates for products such as credit card loans and mortgages, while paying them very low interest rates for the money in their savings accounts.

Key Takeaways:

  • The average interest rate for a savings account is 0.21 percent, according to the Federal Deposit Insurance Corporation (FDIC).
  • Most of the big banks are still effectively paying just 0.01 percent interest to their depositors for savings.
  • Senator Reed argues that it is unfair for big banks to charge hundreds, or in some cases thousands of dollars more in interest rates for things like credit card loans (up to 28 percent) and mortgages (7 percent), while consumers earn just pennies in interest -- less than half of a half percent -- for the money in their savings accounts.
  • In response to a Senate Banking Committee hearing, Wells Fargo CEO Charles Scharf stated that the bank is beginning to raise rates, but so far, deposit rates have barely budged.
  • Senator Reed asks the banks to provide an explanation by November 23, 2022, of why they still pay the same very low interest rates on deposits even as they make giant profits by charging borrowers higher interest rates on loans.
  • The senator notes that the Federal Reserve's actions offer the banks an opportunity to profit, but that savers do not appear to be well-positioned to take advantage of higher interest rates.
  • Wells Fargo collected more than $12 billion in interest from mortgages and other loans last quarter, up 36 percent from the year before, but paid depositors very low interest rates.
  • The senator argues that savers would be better off if the biggest banks offered deposit rates that even modestly resembled the Federal Reserve's target rate.

Statistics:

  • 0.21 percent: the average interest rate for a savings account, according to the Federal Deposit Insurance Corporation (FDIC).
  • 0.01 percent: the effective interest rate paid by big banks to their depositors for savings accounts.
  • 7 percent: the rate for 30-year fixed-rate mortgages charged by Wells Fargo.
  • 16% to 28%: the rates for credit cards charged by Wells Fargo.
  • $16.8 trillion: the amount held in deposits by U.S. commercial banks as of June, according to the FDIC.
  • 36%: the increase in interest collected by Wells Fargo from mortgages and other loans last quarter, compared to the year before.
  • $12 billion: the amount of interest collected by Wells Fargo from mortgages and other loans last quarter.

Sources:

  • United States Senator for Rhode Island Jack Reed
  • Federal Deposit Insurance Corporation (FDIC)
  • Wells Fargo & Co.
  • JPMorgan Chase
  • Bank of America
  • Citigroup
  • U.S. Bancorp
  • Truist
  • PNC
  • Senate Banking Committee
  • Federal Reserve