Banking is a business of spreads. A bank borrows money from depositors at one rate and loans money to creditors at a higher rate. They collect the spread. The Treasury loans money at 8%. The Fed has set interest rates at near zero. How can a bank loan money to anyone but the most risky of creditors with that kind of spread? They can't really. They have to invest in risky assets. There is a disincentive to lend implicit in these TARP loans.
Moral hazard is in high gear, my friends.
No comments:
Post a Comment