Why higher interest rates can help banks — and hurt them

Higher interest rates can boost banks’ net interest income when short-term borrowing costs remain below longer-term lending rates. But rates that rise across an inverted or sharply higher yield curve can squeeze margins and weaken demand for mortgages and investment banking services.

Banks also remain exposed to losses on long-term bonds bought during the pandemic’s low-rate period. Rapid rate increases contributed to deposit runs and forced bond sales at losses in 2023. Rising long-term yields tied to inflation, debt concerns or recession fears could also pressure bank stocks through weaker economic growth and higher loan losses.

The effect of rate changes depends on the shape of the yield curve and the reasons behind the move, not simply whether rates are rising.

Read the full story at finance.yahoo.com.