Newsletter

What Is the Impact of a Low Interest Rate Environment on Bank Profitability?

Abstract: The economic conditions and low interest rate environment of recent years have been challenging for banks that rely on a wide spread between long- and short-maturity yields to generate earnings. The authors? analysis indicates that a low interest rate environment is associated with decreased profitability for banks, particularly for small institutions. However, the estimated negative effects on bank profits are economically small and are outweighed by the likely positive effects on profits of low interest rates boosting economic activity.

Keywords: Interest rates; bank profits; economic conditions;

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Chicago Fed Letter

Publication Date: 2014

Issue: Jul

Order Number: 324