Smaller Banks Less Able to Withstand Flattening Yield Curve
4 Pages Posted: 13 Jul 2018 Last revised: 29 Apr 2020
Date Written: 2018
For the overall U.S. banking system, the effect on profitability of yield-curve flatteningâ€”the lowering of the difference between the yields of short- and long-term debtâ€”lasts about a year and is relatively small. After the first year, the impact on large banksâ€™ 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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