Sept 16 (Reuters) - Top U.S. banks raised their prime lending rate on Wednesday after the Federal Reserve lifted its benchmark interest rate, a move that would increase borrowing costs for consumers and businesses with loans.
Following the Fed's first rate hike since 2023, the prime rate of JPMorgan , Bank of America, Citigroup, Wells Fargo, KeyCorp, Huntington Bancshares, Fifth Third Bancorp and Truist Financial from Thursday will rise to 7% from 6.75%.
The Fed raised rates by a quarter of a percentage
point on Wednesday and flagged further increases in borrowing costs in the coming months as policymakers focus on addressing persistent inflation.
Shares of big banks ended lower amid broader weakness in U.S. stocks. BofA closed down 2.7%, Citi 2.4%, Wells Fargo 3%, and JPMorgan 1%. Morgan Stanley slipped 1.9% and Goldman Sachs fell 4%.
The prime rate, which follows the federal funds rate, is used by U.S. banks as a reference for setting rates on many financial products such as credit cards and personal loans.
Rate hikes typically boost bank earnings as they earn more net interest income — the difference between what banks earn on loans and pay out on deposits. Banks are largely asset-sensitive businesses as loan yields reprice faster than deposit costs.
A tightening cycle, however, can slow parts of the economy, squeeze loan demand and impact credit quality as clients navigate higher borrowing costs.
Top banking executives who gathered at an industry conference in New York this week struck an upbeat tone on the U.S. economy, saying the overall backdrop remains constructive as clients stay resilient.
"Everything has been so healthy that you need to be a little bit conservative because when the government tries to slow things down, there'll be an impact," M&T Bank CEO Rene Jones said at the Barclays conference on Wednesday.
"You just don't know where it's going to show up."
(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Shilpi Majumdar and Arun Koyyur)
