As interest rates spiked this week, a lot of banks jumped on it, too. The S&P Crossover Index (a look at banks’ ability to pass the rate hikes onto borrowers) spiked, too, until it took a backseat to the MLPR, a look at credit spreads between short- and long-term bonds.
Bank investors were clearly thinking the rate increases would boost their dividends. Bank of America jumped 10 percent to nearly $12 on the news, and Citigroup rose 12 percent. (Because the MLPR is a construction bond measure of how much you can borrow on the Fed’s money, it didn’t move as much as you’d think. Even though some banks said they’d hike borrowing costs, it didn’t hold back some trading banks, which borrowed more money, and thus increased their spreads.)
Not every bank was so fast to the fight. The day after the “increase,” some banks still lagged other segments. Bank of America (for one), didn’t raise rates nearly enough, and didn’t seem to aggressively pass the increase to their customers, either. (According to the NYT’s David Lerman and Ken Bensinger, the bank only passed its “standard increase on a small fraction of its biggest mortgage borrowers.”)
The bank, like others, will keep this up until Thursday, when they can adjust their increases based on another change to the Fed’s “taper” plan. But with mortgage rates already rising and rise expected, Bank of America looks like it’s going to have to hurry up to raise rates further, or get more aggressive in its attempts to drum up business from competitors.