found interesting paper from the richmond fed in 2016 about interest rate movements and net interest margin.
https://www.richmondfed.org/publications/research/economic_brief/2016/eb_16-05
To conclude, the data offered here do not provide supporting evidence for the premise that higher rates will produce wider net interest margins. So why do so many market participants adhere to the idea? One reason may be that they tend to overemphasize the extent to which banks can exploit their market power and temporarily pay less on deposits and charge more on loans as a result of depositors’ reluctance to quickly switch banking relationships.
Another justification may be related to the response of banks to monetary policy when the economy is close to (or at) the zero lower bound on interest rates — the idea being that spreads compress at the lower bound, and that as monetary policy tightens, banks will adjust interest rates on assets and liabilities in a way that allows them to return their margins to their desired targets. While this last hypothesis deserves further consideration, it is difficult to address using U.S. data, since there are so few episodes when the economy has been close to or at the lower bound.
The fact that many questions about this relationship remain open, however, underscores the need for caution when forecasting what might happen to bank net interest margins as the Fed tightens rates.
rawraw
March 12, 2017, 11:09pm
#2
It depends on the balance sheet structure. In general, when people in market talk about banks, they tend to mean the top few largest banks. And most of those banks have balance sheets that benefit from rising rates, unless they have used derivatives or other measures to change that exposure. Smaller banks, on the other hand, often are not structured this way.