Banks earned $1 trillion windfall during Fed’s high-rate period

U.S. banks earned an estimated $1 trillion in excess interest revenue during the Federal Reserve’s two-and-a-half-year period of elevated interest rates, an analysis of official data by the Financial Times shows. Lenders reportedly benefited from higher yields on deposits held at the Fed while paying relatively low rates to many savers — boosting profit margins across the country’s more than 4,000 banks. At the end of the second quarter, the average U.S. bank paid depositors an annual interest rate of 2.2%, according to Federal Deposit Insurance Corporation data. This is higher than the 0.2% rate two years ago but well below the Fed’s 5.5% overnight rate. JPMorgan Chase and Bank of America reportedly paid 1.5% and 1.7% on average, respectively. Those lower payments to depositors generated roughly $1.1 trillion in additional revenue, about half of total bank income over the period, the Financial Times’ calculations indicate. The approach contrasts with Europe, where some governments imposed windfall taxes on banks that benefited from rising interest rates. Bank actions following rate cut The Fed recently cut its main policy rate by half a percentage point — with some banks then moving quickly to pass the cuts on to depositors. Hours before the reduction, Citi informed private bank clients that their rates on accounts paying 5% or higher would fall by half a percentage point if the Fed acted, according to a source familiar with the matter who spoke with the Financial Times. At JPMorgan, clients with $10 million or more in cash were reportedly told their savings rates would be cut by 50 basis points and that future changes would track the Fed’s actions. “Because of the rate cut, banks will certainly have the ability to reduce deposit costs,” Chris McGratty, head of U.S. bank research at KBW, told the Financial Times. “The degree of aggressiveness will, I think, vary bank to bank.” JPMorgan said it aimed to ensure a “fair and competitive rate.” Citi and Bank of America declined to comment, according to the report. Larger windfall shares in the past A report from the Risk Management Association compared banks to gas stations — noting that they are typically slow to raise prices but quick to cut them. Many analysts had predicted that competition from fintech companies and the ease of moving funds would force banks to share more of the Fed’s higher rates with depositors. Analysis from the Financial Times shows banks retained much of the benefit, though slightly less than in previous tightening cycles. The collapse of Silicon Valley Bank and other failures in early 2023 forced mid-sized and smaller banks to raise rates to retain customers — while larger banks saw an influx of deposits, reportedly allowing them to delay rate increases. Overall, U.S. banks captured about two-thirds of the Fed’s higher interest rates from March 2022 through mid-2025, paying depositors nearly $600 billion in interest. By comparison, during the last rate-hike cycle from 2016 to 2019, banks captured 77% of the benefit, the Financial Times added. Although the Fed is now easing monetary policy, bank stocks rose as investors bet that lower rates and a healthy economy would spur borrowing and investment banking activity. The highest interest rates in more than a generation also pushed nearly $3 trillion into certificates of deposit, which typically offer the highest fixed rates and cannot be changed overnight, data showed.