INTERPRETING FINANCIAL NEWS

Interpreting Financial News

Interpreting Financial News

Part A

Lower interest rates may reduce the size of banks.

Lower interest rates are beneficial because they can boost the interests banks profit from on their assets versus the interest they yield on their liabilities. However, throughout the 1992-1996 time spans when interest rates were so reduced, numerous families removed bank down payments and bought into their cash in supply mutual funds. This can decrease the effectiveness of banks because it restricts the total earnings (in dollars), while there are some repaired costs (salaries, etc.) that should be paid. For this cause, some banks may ...