How Does the Net Income Interest Impact the Bank?
Banks may be more sensitive to changes in interest rates or less sensitive depending on their specific assets and liabilities and whether they are at a fixed or floating rate. Banks will often be liability sensitive if their liabilities tend to re-price faster than the assets. Furthermore, the bank is defined as asset sensitive if the liabilities re-price slower than the assets. These two definitions mean the net income interest has a direct impact on the interest rate paid to customers for liabilities and the interest rate charged for assets in loans, mortgages or securities. Typically, the federal government regulates specific fixed interest rates so the impact on mortgage rates is slight, although banks in poor fiscal health will be greatly impacted by the net income interest and adjust their interest rates accordingly.
