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Smaller Banks Less Able to Withstand Flattening Yield Curve

June 2018

Pavel Kapinos and 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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