Search Results
Journal Article
Do Net Interest Margins for Small and Large Banks Vary Differently with Interest Rates?
Rajdeep Sengupta and Fei Xue examine the relative contributions of activities that compose bank NIMs as well as their sensitivities to interest rates. They find that the recent decline in bank NIMs was largely driven by changes in interest rates rather than changes in the composition of NIM components in bank portfolios. After controlling for financial and economic conditions that also affect bank NIMs, they find that NIM contributions from loans and deposits are highly sensitive to interest rates. However, these sensitivities are not always symmetric between large and small banks and between ...
Journal Article
Cyclical Properties of Bank Margins: Small versus Large Banks
We study cyclical properties of the net interest margin (NIM) in the US banking sector in the aggregate as well as separately for small and large banks. In the aggregate and among large banks, NIM is countercyclical. Among small banks, however, NIM is procyclical. Further, we find that this result is driven by differences in the cyclical dynamics of small and large banks' funding costs rather than asset yields.
Journal Article
Why Do Net Interest Margins Behave Differently across Banks as Interest Rates Rise?
Rising interest rates can influence bank profitability positively (by increasing payments from those with floating-rate debt) or negatively (by forcing banks to offer higher returns to their depositors). Although most banks became more profitable as the Federal Reserve raised rates in 2022–23, a smaller group of banks saw consistent decreases in their net interest margins (NIMs). Understanding why these banks’ NIMs declined may provide useful insight to policymakers concerned with vulnerabilities in the banking system.Brendan Laliberte and Rajdeep Sengupta explore the differences in bank ...
Working Paper
How Would US Banks Fare in a Negative Interest Rate Environment?
This paper uses a unique new data set to empirically examine bank-level expectations regarding the impact of negative short-term interest rates on bank profitability through net interest margins. The results show that banks differ significantly in their views regarding how profits might be affected in a negative interest rate environment and that much of this heterogeneity can be explained by cross-bank differences in the provision of liquidity services. We find that those banks that are more active in providing liquidity to borrowers anticipate suffering reduced profitability through ...
Discussion Paper
Low Interest Rates and Bank Profits
The Fed’s December 2015 decision to raise interest rates after an unprecedented seven-year stasis offers a chance to assess the link between interest rates and bank profitability. A key determinant of a bank’s profitability is its net interest margin (NIM)—the gap between an institution’s interest income and interest expense, typically normalized by the average size of its interest-earning assets. The aggregate NIM for the largest U.S. banks reached historic lows in the fourth quarter of 2015, coinciding with the “low for long” interest rate environment in place since the ...
Working Paper
How Would US Banks Fare in a Negative Interest Rate Environment?
The effectiveness of negative interest rates as a monetary policy tool depends importantly on the response of the banking sector. This paper offers unique new insights for U.S. banks by using supervisory data to examine bank-level expectations regarding the impact of negative rates on profitability through net interest margins. The main results show that the largest U.S. banks differ significantly in how they respond to negative interest rates. The most significant channel of adverse exposure comes from the pass-through of the negative policy rate to interest rates on short-term liquid assets ...