Biggest banks’ loan yields keep falling even as Fed remains wary

President Donald Trump is frustrated that the Federal Reserve hasn’t lowered interest rates this year. At the biggest US banks, loan yields are steadily dropping anyway. The central bank reduced its benchmark rate by a full point last year and then stood pat, but the impact is continuing to filter through borrowing costs set by the banks. Average lending yields dropped at the industry’s largest firms in the second quarter, leading to declines in net interest margins at JPMorgan Chase & Co. and Wells Fargo & Co. At Citigroup Inc., the average rate earned on corporate loans fell 1.25 percentage points from a year earlier. Bank of America Corp.’s net interest margin came in lower than every analyst estimate tracked by Bloomberg. The Fed has resisted political pressure to reduce rates, concerned that President Donald Trump’s tariff hikes will fan inflation. Trump has repeatedly assailed Fed Chair Jerome Powell over that decision, saying last month that he would choose a successor who will cut borrowing costs. Still, market rates have dropped over the past year as some measures of inflation have ebbed. Banks also face competitive pressures, including from digital lenders and private credit firms making a dent in their dominance of the commercial lending space. “Loan demand is rather soft, so banks are having to drop their rates in order to attract business, and those rates are determined by the market and not the Fed, especially at the long end of the curve,” Joseph Brusuelas, chief economist at RSM US, said in an interview. Falling interest rates will pass through to consumers as borrowings roll off the books, Bank of America Chief Financial Officer Alastair Borthwick said when asked about deposit pricing on an earnings conference call. Bank of America said Wednesday that the average rate on the commercial real estate loans it made dropped a full point from a year ago, even as the rates on consumer loans rose slightly. At JPMorgan, the average interest rate on loans was 6.71% in the second quarter, compared to 7.03% during the same period a year ago, its earnings documents showed. Wells Fargo’s average rate was 5.95% versus 6.40%. That’s added pressure to the banks’ net interest margins, a measure of how efficiently they’re managing borrowing and lending to drive profit. At Wells Fargo, the net interest margin on a taxable equivalent basis was 2.68% in the second quarter, compared to 2.75% the year before. JPMorgan posted a net interest margin of 2.43% versus 2.62%. Deposit pricing Still, the interest the banks paid out on their deposits also fell. Wells Fargo was paying an average 2.09% on deposits in the second quarter compared to 2.46% for the same period a year ago. At JPMorgan, it was 2.40% versus 2.90%. This all comes amid a mixed picture for prices: Underlying US inflation climbed by less than expected for a fifth month in June, even though there were signs that companies are beginning to more meaningfully pass some tariff-related costs to consumers. Central bank policymakers have said they’re worried the president’s tariff hikes will push prices up further, preferring to gather more economic data and information before opting to resume rate reductions. Trump has made clear he wants Powell’s successor to be someone who favors lowering rates — a stance that has raised questions about Fed independence. In an interview Tuesday, Treasury Secretary Scott Bessent said a formal process was already starting regarding identifying the nominee to become next Fed chair, as the president and his aides seek to revamp its leadership next year. Bessent also pointed out that Trump has said “numerous times he is not going to fire Jay Powell.” JPMorgan Chief Executive Officer Jamie Dimon, asked Tuesday about the risk that Fed autonomy is at risk, said its independence was “absolutely critical.” That was the case not “just for the current Fed chair, whom I respect, Jay Powell, but for the next Fed chair.” -- By Katherine Doherty and Jayna Rohslau (Bloomberg)

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