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To: tsigprofit who wrote (12614)	6/26/2003 3:58:33 PM
From: Bucky Katt	Read Replies (2) \| Respond to of 48461

Banks Retain Prime Rate--Despite the Fed's Cut By TARA SIEGEL BERNARD DOW JONES NEWSWIRES NEW YORK -- The nation's banks have put on their blinders. They typically move their prime-lending rate, which is used to price many consumer loans, in tandem with the Federal Reserve's short-term interest rates -- but so far, they seem to be ignoring the Fed's quarter-point cut, which pushed the federal funds rate to a 45-year low of 1%. That isn't surprising given that rates are near their bottom and already are pinching banks' net-interest margins, or the difference between what they charge on loans and their cost of funds, like deposits. As of now, the banks are seemingly waiting for someone to take the plunge first -- and when that bank does, which is likely, most banks will follow suit and lower their prime rates. The prime rate is currently at 4.25%, according to Bankrate.com. If the banks decide to take out the shears, it will fall to 4%. Such a cut effects a variety of loans, including some auto and home-equity loans, though it doesn't effect mortgages, which track 10-year Treasury notes. Still, mortgage rates also have tumbled to record lows. "Oppressively low interest rates should cause revenue and earnings-per-share growth to decelerate throughout the balance of this year," said Merrill Lynch & Co. analyst Edward Najarian, referring to the regional banks he covers. But all institutions are feeling the squeeze in some form. Interest rates that banks pay to depositors already have dropped to rock-bottom levels, so banks can't really lower their funding costs any further. That is compounded by the fact that record-low mortgage rates continue to trigger high levels of refinancing: many homeowners prepaid their mortgages sooner than lenders had planned on, so banks with big residential-mortgage and mortgage-backed-securities portfolios are receiving an influx of cash and don't have anywhere to reinvest the money but in lower-yielding investments. _____________ I think the FED has painted itself into a very messy corner...