Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Rankings & dataApril 30 2015

US banks and rising interest rates: a balancing act

As the US's economic recovery picks up steam, the Federal Reserve has tapered purchases of debt securities and expects to raise interest rates later this year. First quarter results of the largest US commercial banks show that they are more than prepared for the challenges that will follow.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

The US Federal Reserve's quantitative easing (QE) programme has left banks starved for higher interest rates. The five largest commercial US banks by Tier 1 capital – JPMorgan, Bank of America (BoA), Citigroup, Wells Fargo and PNC – estimate that a 1 percentage point increase in interest rates would result in higher interest income, with the figure being as high as $3.69bn for BoA. However, the end of QE will also send down the value of banks’ securities portfolios, which increased under the programme.

But, while banks will see the value of their debt portfolios fall, lenders with investment divisions may also gain from the return of interest rate differentials, creating more volatility and hedging opportunities, which should boost profits in fixed-income, currency and commodities divisions (FICC).

To continue reading, join our community and benefit from

  • In-depth coverage across key markets
  • Comments from financial leaders and policymakers worldwide
  • Regional/country bank rankings and awards
Activate your free trial