Pump Up The Profit: The Fed

The Fed's most recent attempt to help the economy has put banks in a tough situation. Their intention was to benefit mortgage volume, but consequently, loans are not as profitable as they used to be. On Wednesday, the central bank revealed their plan to purchase $300 billion in long-term debt. The outlook, however, does not appear to be a positive one. This situation causes problems for banks--banks that typically borrow money at short-term interest rates and issue long-term loans. Gerald Hanweck, a professor at George Mason University's School of Management says, "Normally banks do well when the yield curve is steep". This yield curve has presented the banks with a little bit of hope. The Fed's "aggressive rate-cutting campaign" is completely responsible for the acceleration of the current financial crisis. Hanweck continues saying that, "It could backfire a little on the Fed by weakening bank earnings which aren't that strong to begin with". The Fed's Treasury buying program has released very few details, but the Federal Reserve Bank of NY assures that the previous purchases are focused on improving the current situation.

-Hannah