Cui bono? Policy makers may assist the financial industry once more when the U.S. Federal Reserve begins tightening monetary policy.
Having bailed them out and then helped to repair their balance sheets with record-low interest rates and bond-buying, policy makers may assist the financial industry once more when the U.S. Federal Reserve begins tightening monetary policy.
That’s according to two recently published reports by the Bank for International Settlements and McKinsey & Co., both of which have highlighted the downsides of ultra-easy borrowing costs in the past.
Based on seven years of data from 109 large international banks in 14 countries, the BISconfirmed a relationship between short-term rates and the slope of the curve for bond yields with bank profitability.
The conclusion drawn by Claudio Borio, the head of the monetary and economic department at the BIS, and colleagues is that the positive impact of being able to earn income by lending money out for higher rates over time is bigger than the hit of defaults and income that doesn’t carry interest.