10-09-2015, 04:12 PM
I should add that corporations increase/lower their dividend all the time. And in a low interest rate environment, borrowing costs are lower and banks also aren't earning the same higher interest rates on loans. So in that regard, there's nothing particularly extraordinary or unusual about that 6% dividend floating with the economy.
That said, it's not that simple with banks because what they earn is actually based on spreads. Typically their margins decrease in rising rate environments and increase in falling interest rate environments, and are otherwise fairly stable.
In other words, this is really an increase in the cost of membership (which has its privileges). The dividend is kind of a wonky concept, because in reality the cost of that capital to the banks is just what they pay in interest on deposits (which is 2% on a short-term cd's, but practically nothing on cash - whatever that averages out to). And seems like reserve requirements and the fed funds rate would matter more to margins and how much they can lend.
That said, it's not that simple with banks because what they earn is actually based on spreads. Typically their margins decrease in rising rate environments and increase in falling interest rate environments, and are otherwise fairly stable.
In other words, this is really an increase in the cost of membership (which has its privileges). The dividend is kind of a wonky concept, because in reality the cost of that capital to the banks is just what they pay in interest on deposits (which is 2% on a short-term cd's, but practically nothing on cash - whatever that averages out to). And seems like reserve requirements and the fed funds rate would matter more to margins and how much they can lend.
