Tag Archives: bank profitability

Is a steeper yield curve good news for banks? A challenge to the conventional wisdom

Oliver Brenman, Frank Eich, and Jumana Saleheen

The conventional wisdom amongst financial market observers, academics, and journalists is that a steeper yield curve should be good news for bank profitability.   The argument goes that because banks borrow short and lend long, a steeper yield curve would raise the wedge between rates paid on liabilities and received on assets – the so-called “net interest margin” (or NIM).  In this post, we present cross-country evidence that challenges this view.  Our results suggest that it is the level of long-term interest rates, rather than the slope of the yield curve, that drives banks’ NIMs.

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Filed under Banking, Financial Markets, Financial Stability, Monetary Policy