The challenge for bankers is retaining profits when the cost of a major input, in this case funds, becomes more expensive. We would be wise to avoid fixing a problem whose societal effect has been overstated with a solution whose potential costs have been repeatedly underestimated.
Observers also point out that bank lending has grown faster than deposits.
At some point in the future, it is argued, banks will have to turn down loan applications or at least raise the prices charged for a loan because of a lack of available, cheap deposits. To gain insight into banks' use of insured deposits, I asked several Ninth District bankers to discuss their experiences in the current funding environment. The bankers came from large, medium and small banks, primarily in Minnesota. We have solicited bankers' views in the past and, like those previous meetings, I found the give and take of the funding meeting quite helpful, although this column may not reflect the views of the attendees. By the end of the meeting, I was convinced that recent funding trends do not support the crisis designation, even though bankers certainly face challenges.