How Do Changes In Interest Rates Affect Bank Earnings?
Banks earn income on the spread between the rates they earn on assets (loans and securities) and the rates they pay on liabilities (deposits and borrowings). Bankers have become adept at maintaining that spread within a relatively narrow band by balancing the duration and maturity of their assets and liabilities. Modest and gradual changes in interest rates have only minor impacts on most bank interest margins. In addition, most banks now earn 20% to 40% of their revenues from non-interest sources, such as deposit service charges, trust fees, and fees for other products and services.
