Reply #73: A reply.

[Frodo]

Yeah, I think I mentioned those as deterrents. They go hand in hand with a bad employment situation.

Well.... yes and no. I think we can agree that the employment picture was pretty rosy at the and of the 90's, but the "record" today's bankruptcies are topping was set during those years. i blame it more on how easy it is to go in to bankruptcy (it's really almost painless for many people) - but, hey, I'm a banker - what did you expect me to say?

I don't see how that plays into the point of profit margin. It does favor the high profit margin argument a bit

Actually, it's that the credit card portion of the market has gotten so cutthroat that most banks DON'T make any profits doing it. It's getting to the point where I'm willing to separate "credit card companies" out from "banks". We really don't operate the same way. in fact, a couple of the big boys are more like Fannie Mae (without the pseudo Govt backing) than they are like banks.

You yourself stated above in this thread banks make the money off of what they loan out. They are loaning lots out.

To make the point more completely. They make nothing if they can't lend the money out... but the profit is in the DIFFERENCE between the rate on loans and the rate on deposits. You can make LOTS of loans and lose money if you have no pricing power... and a lot of banks will hit that wall when rates start to climb and new borrowing slows down. For a good bank (ahem...:-)), this isn't as big a problem. We have solid credit standards, so fewer of our clients are going to bail on us and the "effective" margin can be more manageable without actually changing rates as much.

Didn't the 80's have notorious bank problems?

Yes. Different situation. That was a commercial real estate crunch. Some larger banks had gotten overly leveraged in one type of lending (a warning for the big credit-card "banks" but it's probably too late for them) and when the Trumps of the world had problems they dumped assets on those banks that were worth a fraction of what they were taken for collateral. Again, the better managed banks did not have that problem. The bank I worked for at the time was hardly ever better than the late 80's early 90's.
Who said anything about panic?

Sorry - I should have said "does this mean you should SELL all of your bank stocks? - no..."