Interest Rates, Yield Curves, and Bank Profitability: Evidence from the United States Banking Sector
Olivia BROWN & Brandon C. Koford
What the paper says
This paper investigates the effect of monetary policy on the profitability of US banks from 2004 to 2023, a period that includes the Financial Crisis, a prolonged low-rate environment, and the rate hikes following the COVID-19 pandemic. Using annual data for all US banks, we analyse how the Federal Funds Rate and the yield curve impact net interest income, non-interest income, loan loss provisions, and return on assets with a focus on differences across bank sizes and rate environments. We find that in normal rate environments, increases in the federal funds rate and the yield curve benefit smaller banks but reduce profitability for larger institutions. In low-rate environments, large banks show stronger gains in net interest income, likely due to more diversified funding and asset strategies. The results highlight the importance of accounting for both interest rate regimes and bank size in making and assessing monetary policy.Copyright© 2026 The Author(s). This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.Article’s History: Received 25th of January, 2026; Revised 12th of February, 2026; Accepted 8th of March, 2026; Available online: 30th of March, 2026. Published as article in the Volume XXI, Spring, Issue 2(92), March, 2026.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.50 × 0.4 = 0.20 |
| M · momentum | 0.50 × 0.15 = 0.07 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.