Prime-Rate Dominoes Falling

Last quarter, many banks reported sharp declines in net interest margin, or the difference between the interest rate banks charge on loans and their own borrowing costs. And in conference calls with analysts, many bank officials warned that the declines could worsen if the Fed cut rates again.

Just this week, North Fork Bank(NFB Quote - Cramer on NFB - Stock Picks), a New York regional, warned that its lending margin is being squeezed and that second-quarter earnings will fall short of expectations. The bank made that announcement on the eve of the Fed cut.

Bank of America's concession wasn't unexpected. Earlier in the day, RBC Capital Markets bank analyst Gerard Cassidy said: "We would be surprised if the industry is able to 'stick to their guns' by not lowering the prime rate as the Federal Reserve uses moral suasion to encourage a lower prime rate."

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