Smaller Banks Less Able to Withstand Flattening Yield Curve
Pavel Kapinos () and
Economic Letter, 2018, vol. 13, issue 8, 4 pages
For the overall U.S. banking system, the effect on profitability of yield-curve flattening—the lowering of the difference between the yields of short- and long-term debt—lasts about a year and is relatively small. After the first year, the impact on large banks’ profitability becomes positive; for smaller institutions, it stays negative and becomes larger. Recent yield-curve flattening is likely to more strongly affect smaller banks, reducing their profitability.
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