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Federal Reserve Bank of Dallas
Economic Letter
Smaller Banks Less Able to Withstand Flattening Yield Curve
Pavel Kapinos
Alex Musatov
Abstract

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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Pavel Kapinos & Alex Musatov, "Smaller Banks Less Able to Withstand Flattening Yield Curve" , Federal Reserve Bank of Dallas, Economic Letter, volume 13, issue 8, pages 1-4, June 2018.
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