National banks are estimated to have earned a staggering $1.1 trillion in excess profits during the two-and-a-half-year high-interest-rate period.

According to an analysis by the Financial Times (FT) on the 22nd, based on data from the Federal Deposit Insurance Corporation (FDIC), around 4,000 banks in the U.S. earned significant interest from deposits held with the Federal Reserve (FRB), while keeping the interest rates for their depositors relatively low, thus generating substantial profits.

Although the interest rates for some savings accounts have risen in line with the Fed’s benchmark rate, which exceeds 5%, the majority of depositors—especially those at major banks like JPMorgan Chase and Bank of America (BofA)—were given much lower rates.

As of the end of the second quarter, the average deposit interest rate at U.S. banks was just 2.2% annually, significantly higher than the 0.2% rate two years ago, but still much lower than the Fed’s overnight (one-day) rate of 5.5%, according to the FT. Notably, the average interest rates at JPMorgan and BofA were 1.5% and 1.7%, respectively.

Due to this interest rate gap, banks earned $1.1 trillion in excess interest income, accounting for about half of the total profits generated by banks during the same period. Many analysts initially believed that when the Fed began its monetary tightening policy in March 2022, increased competition from fintech companies and the ease with which consumers could move funds would benefit depositors. However, the reality has been that banks, much like in past periods of rate hikes, continued to accumulate significant excess profits.

These banks, which enjoyed massive excess profits, are now moving quickly to pass on last week’s Fed rate cut to depositors by lowering the interest rates offered on deposits.

The FT, citing sources, reported that employees at major banks like Citibank and JPMorgan have indicated that deposit rates for key clients are expected to fall in line with the Fed's rate cut.

The Risk Management Association (RMA), a nonprofit that provides risk-related services to over 900 financial firms in the U.S., noted in a report earlier this year that just as gas stations tend to raise prices quickly but are slow to reduce them, banks are slow to increase deposit rates but quick to lower them.

Additionally, the FT mentioned that some European governments have imposed windfall taxes on such excess profits from banks.