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Do Net Interest Margins and Interest Rates Move Together?

Huberto Ennis (), Helen Fessenden and John R. Walter

Richmond Fed Economic Brief, 2016, issue May

Abstract: Many market participants assume that, as the Federal Reserve tightens monetary policy, and market rates increase in response, banks will be better off because their net interest margins will also increase. As a way to understand the origins of this expectation, in this Economic Brief we look at the relationship between the federal funds rate and the average net interest margin for U.S. banks since the mid-1980s. We find that the relationship is not as clear-cut as one might suspect.

Date: 2016
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