Competition and Loan Pricing

I have written an article for the Federal Home Loan Bank of Seattle soon to be posted in their “What Counts” publication.  The topic is competition in loan pricing.  The intent of the article is not to eliminate the role of competion when setting the pricing on a commercial loan.  It is, however, intended to point out that there are a lot of reasons why using competiton as the sole criteria for pricing a loan may be detrimental to the profitiability of a commercial bank.

Other issues such as the cost of funds, origination and servicing costs and risk should play a more important role in the pricing than competition.  To do this in a logical and consistent manner, it is imperative financial institutions seek tools to assist them in this process which is exactly why at a comprehensive, affordable loan pricing model can be found.

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