When will LC next raise rates?

[jheizer]

Thanks. 

[AnilG]

"The starting point for base interest rate is the middle of the spread between the interest rate for unsecured consumer credit as published in Federal Reserve Board Consumer Credit G.19 Release and the average interest rate for 6-month certificates of deposit as published in Federal Reserve Board Selected Interest Rate H.15 Release."

An old blog post detailing how Lending Club sets rate.
Lending Club Base Interest Rate - Excess Lending Capital Supply http://andirog.blogspot.com/2012/06/lending-club-base-interest-rate-excess.html

[Fred93]

"The starting point for base interest rate is the middle of the spread between the interest rate for unsecured consumer credit as published in Federal Reserve Board Consumer Credit G.19 Release and the average interest rate for 6-month certificates of deposit as published in Federal Reserve Board Selected Interest Rate H.15 Release."

An old blog post..

Funny!  G.19 no longer contains a series with the words "unsecured consumer credit" in its title, and H.15 no longer contains a series with "6-month certificates of deposit" in its title. 

G.19 does contain a series for 24-month consumer loans.  That's close.  Its presently at 10.05%  If we had data for all consumer loans it might be a little higher I'd think.

Bankrate shows 6 month CDs from 0.01% to 1.11%, midpoint is 0.55%  Hard to say more.  If the fed still tracked this they would average among all the banks.  I don't have that ability.  An average might be a little lower I'd think.

The middle of that spread is 5.3% 

LC's latest schedule shows A1 loans at 5.32%, so I'd say that methodology gets one pretty close.

This is a goofy formula tho.  If they wanted a riskless rate, T-bill rate would have been the thing.  CD rates have funky market forces in them.  (Right now, stickyness to historical near-zero rates that bank customers have grown to accept).  The consumer credit rate contains risk, which we are cutting by a factor of two when we average this with the CD rate.

[rawraw]

"The starting point for base interest rate is the middle of the spread between the interest rate for unsecured consumer credit as published in Federal Reserve Board Consumer Credit G.19 Release and the average interest rate for 6-month certificates of deposit as published in Federal Reserve Board Selected Interest Rate H.15 Release."

An old blog post..

Funny!  G.19 no longer contains a series with the words "unsecured consumer credit" in its title, and H.15 no longer contains a series with "6-month certificates of deposit" in its title. 

G.19 does contain a series for 24-month consumer loans.  That's close.  Its presently at 10.05%  If we had data for all consumer loans it might be a little higher I'd think.

Bankrate shows 6 month CDs from 0.01% to 1.11%, midpoint is 0.55%  Hard to say more.  If the fed still tracked this they would average among all the banks.  I don't have that ability.  An average might be a little lower I'd think.

The middle of that spread is 5.3% 

LC's latest schedule shows A1 loans at 5.32%, so I'd say that methodology gets one pretty close.

This is a goofy formula tho.  If they wanted a riskless rate, T-bill rate would have been the thing.  CD rates have funky market forces in them.  (Right now, stickyness to historical near-zero rates that bank customers have grown to accept).  The consumer credit rate contains risk, which we are cutting by a factor of two when we average this with the CD rate.

I think those indexes are proxy for competitive levels of rates on both borrowing and investing side and  not meant to be risk free but who knows. Anil found what I remember

Sent from my SAMSUNG-SM-G935A using Tapatalk

[nonattender]

I've been buying T-bills rather than putting more money into short term bond funds lately, as the yields are higher going directly into T-bills.

This might be a stupid question, but whenever I don't ask one I wind up feeling more stupid:

Why would you buy T-bills rather than doing brokered CDs?  3-mo CD yields are about 1%...

(Or are you going farther out in duration?  Maybe your definition of "short term" is different?)

[AnilG]

G.19 never contained a series with words "unsecured consumer credit". You need to look for Credit Card Plans Account Assessed Interest line. H.15 discontinued CD Rates in December 2013.

IMO it was a genius move on the part of Lending Club to use midpoint between these two interest rates as starting point for the LC interest rate. At that time LC was marketing to attract people carrying credit card debt as borrowers and peoples saving in Banks/CDs as lenders. This strategy made LC interest rates more attractive to both groups and easy to understand.

As LC has moved on to primarily Banks and large Investment Funds as lenders, LC may have switched from CD Rates to 2-5 years Treasury Securities.

From https://www.federalreserve.gov/feeds/h15.html

December 05, 2013

Discontinuance of CD rates (secondary market)
As of the release on December 16, 2013, the H.15 will cease publication of the 1-month, 3-month, and 6-month CD rates. Recent attrition has reduced both the number and types of institutions that provide quotes creating a challenge to construct statistically robust estimates of CD rates, and it is not feasible to resume publication. The historical rates will remain available through the Federal Reserve Board's Data Download Program (DDP).

Funny!  G.19 no longer contains a series with the words "unsecured consumer credit" in its title, and H.15 no longer contains a series with "6-month certificates of deposit" in its title. 

G.19 does contain a series for 24-month consumer loans.  That's close.  Its presently at 10.05%  If we had data for all consumer loans it might be a little higher I'd think.

Bankrate shows 6 month CDs from 0.01% to 1.11%, midpoint is 0.55%  Hard to say more.  If the fed still tracked this they would average among all the banks.  I don't have that ability.  An average might be a little lower I'd think.

The middle of that spread is 5.3% 

LC's latest schedule shows A1 loans at 5.32%, so I'd say that methodology gets one pretty close.

This is a goofy formula tho.  If they wanted a riskless rate, T-bill rate would have been the thing.  CD rates have funky market forces in them.  (Right now, stickyness to historical near-zero rates that bank customers have grown to accept).  The consumer credit rate contains risk, which we are cutting by a factor of two when we average this with the CD rate.

I think those indexes are proxy for competitive levels of rates on both borrowing and investing side and  not meant to be risk free but who knows. Anil found what I remember

Sent from my SAMSUNG-SM-G935A using Tapatalk

[Fred93]

This might be a stupid question, but whenever I don't ask one I wind up feeling more stupid:
Why would you buy T-bills rather than doing brokered CDs?  3-mo CD yields are about 1%...

Actually, I have some of each.  I have nothing against CDs.

I am in a high tax state, 13.3% state income tax, and there's no state tax on treasuries, so that levels things a bit.  I get the full brunt of this when I hit fed AMT, as then additional $ of state tax are not deductible, so the payment of state tax is purely additive.

1% taxed by both state & fed is equivalent to 0.865% taxed by fed only.

Treasuries also more liquid.

You raise a good point tho.  I check from time to time, but probably haven't checked the relative yields every day I've bought.

[Half Right]

3 month brokered CD's at Schwab running at .95% for Bank of China last week.
Moving alot of money out of Ally Bank Demand Notes as I am becoming concerned with their subprime auto loans and the declining value of used cars.
Not a total panic but I am moving money out

[jennrod12]

Looks like May 1-15 won the poll!