How do interest rate changes impact banks?

Expert Solution

Interest rates are impacting banks in various manner-

A. Interest rates are fixed by the central banks and they are adopted by the commercial bank in their deposit and loan interest rates so it will be impacting their overall income levels to large extent

B. Interest rates are impacting the banks as they are impacting the overall customer base of the consumers

C. Interest rates are also impacting the rate of default of customers in the the bank's portfolio because when the interest rates will be going up it will mean that the bank will be having a larger amount of customers who will be defaulting upon the rate of interest

D. interest rates can also lead to stimulation of demand in the economy because when the Federal Reserve would be lowering the overall interest rate, it would be result into stimulation of demand into the corner and it will also lead to increase in the demand of the consumer funds.

E. interest rate are impacting the bank borrowing rate as bank will be borrowing from other banks at the federal rate.

Overall interest is an inseparable part of the commercial banking space.

jeff jeffy answered 2 years ago

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