Dave Kytes of Novantas Says Rates for Banks that Failed Stress Test to Go Higher

Dave Kytes, the managing director at Novantas, a consulting company that serves the banking industry, believes that banks that require more capital will need to raise their deposit rates. He says in an article in the WSJ "We'll see rates for those banks (banks that need to raise more capital) get a lot more aggressive." He also believes that banks that don't need to raise additional capital will lower their rates.

Banks that require additional capital include Bank of America, Citibank, and GMAC.

Why he believes this isn't exactly clear. It may be that consumers will need to receive a higher rate to put money into an "impaired bank." A bank that is rated as sound by the government can do the opposite. Still, if the bigger banks decide to solve their capital needs by shrinking their balance sheets, then they may need less deposits, not more. Deposits are liabilities on a bank's balance sheet and are used to fund loans. One way to reduce the need for capital, is to reduce assets (loans), which conversely reduces the need for offsetting deposits.

We'll watch these big bank cd rates to see if there are any changes due to their capital needs.