Even though interest rates are at historically low rates, some economists are wondering why the market is not recovering at a higher speed. The Wall Street Journal explained that low interest rates may be benefiting banks more than consumers, as financial fears and federal regulations are keeping financial institutions from confidently passing on the low rates, and instead allowing banks to make more profits.
While borrowers are seeing lower interest rates, the gap between what financial institutions are lending at and borrowing at have grown – suggesting that the borrowers are not receiving the best rate they could.
One reason banks are not passing on the lower rates is that since the financial crisis in 2008, the number of employees in the banking industry has dropped dramatically – there are about half of the number there was in 2006. As interest rates have fallen and mortgage applications have increased, fewer employees are able to process as many loans. Combined with the fears of banks of loans defaulting, many are spending more time and effort looking at an applicant's assets and credit scores, which can be simplified with risk management software, but instead is bringing down the number of loans processed.
However, the Journal found that profits per loan have increased compared to before the financial crisis. From 2002 – 2008, lenders earned about $2 per loan. Now, profits are anywhere from $5 to $100 per loan.
Little can be done to encourage banks to lower their rates other than buying bonds to bring down the national level. However, tools such as loan application software can help employees process loans at faster rates, allowing banks to lower rates without losing profits and help the economy recover quicker.
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