There are people who are buying T-BILLS at less than 2% return who are well aware of what FDIC institutions are offering.
The Discount Rate is what ELIGIBLE institutions can borrow from the FED at, which is 2.25% this week.
The Fed Funds Rate is what banks lend to each other at, which is currently 2.00%
The 11th District Cost Of Funds Index (COFI) is
the weighted average interest rate paid by 11th Federal Home Loan Bank District (CA,NV,NV) savings institutions for savings and checking accounts. It is currently 3.28%
So, this means that the public is loaning to the higher paying banks who appear to be in some sort of trouble,
because the other banks may not trust them.
If they were ELIGIBLE to borrow from the Federal Reserve or other banks, they sure wouldn’t be offering to pay double that rate because they are generous.
They can never borrow their entire assets from the FED, nor other banks, but if they were solid, they wouldn’t be offering such high rates. They do need a base of consumer deposits, but understand why some are offering MUCH higher rates than others.
When looking at 4.50% instead of 2.50%, it’s not just “2 points” it is 80% more….
Don’t assume that FDIC ins. means ZERO risk…
Although we all expect FDIC to step up to the plate the next business day to offer coverage to a failed bank, this just may not be possible if it is a large bank.
I don’t know what the worst case scenario is,, I suppose that it is paying back the principal over time, without paying any interest on the funds ?
