Zero rates are now killing regional bank profits… as predicted

Two years ago, I noted that the steep yield curve produced by the Fed's policy accommodation would give way to a flatter and more treacherous yield curve environment as a weak recovery continued. The Fed would see the weak recovery as a reason to keep rates at zero percent and, thus, cause interest rate expectations to decline. With rates stuck at the zero bound that would mean less interest income for banks and lower profits.

I wrote that "I am starting to take the view that the Fed is reducing net interest margins. Back in 2008 and 2009, US banks benefited from low rates as their net interest margins were huge. For the first quarter of this year, JPMorgan Chase even had a negative net borrowing rate of interest while it made 324 basis points in net margin. They were effectively paid t...


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