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Strategies & Market Trends : New US Economy Policy
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To: Arthur Tang who wrote (67)10/16/1997 11:03:00 AM
From: Arthur Tang   of 435
 
The new economy forces banks to change their operations.

The new economy and the newly created wealth changes the banking practices. Business and personal borrowings from banks are reducing because of non-bank credits available. Earnings and wages are also improving enough to avoid excessive borrowing.

U.S. Banks are charging too high a rate; 9% for business and 13-14% for credut cards plus fees, due to Feds overnight discount rates. The revolt for bank customers comes from liberal trade credits (zero interest rate) and non-bank business promotions (heavy discounting for short periods).

To have U.S. banks survive; Congress is allowing banks to do investment on equity (Wall street investments are traditionally dangerous). So, how will Banks come out ahead? Greenspan already repeatedly warned that investment on Wall street is too dangerous. Equity yields are always way over the national debt interest rate. Feds are having problems selling bonds to member banks.

However, banks might do quite well; if their portfolios have sufficient cash and dividend yields and interest yields to meet payroll and expenses. If banks do not buy and sell stocks for a living; life will go on as usual, but the loan business will all go abroad.

Overnight discount rate, up or down, being important; maybe a thing of the past.
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