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Bank Profitability Rebounds despite Compressed Interest Margins

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Abstract

While traditional sources of U.S. bank revenues have struggled during the pandemic, overall bank profitability has soared. This unusual deviation is largely explained by a substantial decline in banks’ loan loss provisions. Extraordinary policy measures undertaken by the Federal Reserve and U.S. Treasury aided a rebound in financial market conditions and, in turn, reduced projected loan losses. However, this effect is likely to be transitory, suggesting an uncertain future for bank profitability.

Suggested Citation

  • Adam Byrdak & Rajdeep Sengupta, 2021. "Bank Profitability Rebounds despite Compressed Interest Margins," Economic Bulletin, Federal Reserve Bank of Kansas City, issue November , November.
    • Handle: RePEc:fip:fedkeb:93450
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    References listed on IDEAS

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    1. David P. Glancy & Max Gross & Felicia Ionescu, 2020. "How Did Banks Fund C&I Drawdowns at the Onset of the COVID-19 Crisis?," FEDS Notes 2020-07-31-1, Board of Governors of the Federal Reserve System (U.S.).
    2. W. Blake Marsh & Padma Sharma, 2020. "PPP Raised Community Bank Revenue but Lowered Profitability," Economic Bulletin, Federal Reserve Bank of Kansas City, pages 1-5, December.
    3. Huberto M. Ennis & Arantxa Jarque, 2021. "Bank Lending in the Time of COVID," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 21(05), February.
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    More about this item

    Keywords

    Banking; Bank profitability;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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