FYI: An Update on Emerging Issues in Banking 

What the Yield Curve Does (and Doesn’t) Tell Us 

February 22, 2006 

Historically, the yield curve spread, or the difference between short-term and long-term interest rates, has had some 

predictive power for the performance of the U.S. economy and banking industry. In the past, a narrowing, or flattening, 

of the spread has tended to foretell both slower economic growth and increased pressure on bank earnings. 

Furthermore, the yield curve generally has inverted—a condition where short-term rates exceed long-term rates—up to 

two years ahead of a recession. Based on this historical context, the flattening in the yield curve since mid-2004 has 

been on the minds of many economists and banking analysts. Sometimes, however, the yield curve flattens or inverts 

for reasons that may not necessarily foreshadow slower economic growth. 

The shape of the yield curve spread also has held implications for bank margins and profits. Historically, bank net 

interest margins have tended to decline one to two quarters after a decline in the yield curve spread. While many banks 

have found ways of reducing their sensitivity to changes in yield curve spreads in recent years, the largest banks have 

seen their margins squeezed substantially by the recent flattening in the yield curve. And although smaller banks have 

been less affected so far, the earnings of all lenders will likely be affected should the yield curve remain flat for several 

more quarters. This issue of FYI examines the historical relationships of the yield curve with economic growth and how 

changes in the spread have affected banks. 

The Yield Curve and the U.S. Economy 

A yield curve is simply a graph depicting the yields of similar debt instruments of differing maturities. There are many 

yield curves and many ways of measuring the difference, or spread, in short- and long-term interest rates along these 

curves. A common measure of this difference is the spread between the federal funds rate, which is set by the Federal 

Reserve and used in pricing overnight interbank loans, and the 10-year Treasury note yield, which is linked to the 

pricing of traditional fixed-rate mortgages. Two other common measures of the spread take the difference between 

3-month and 10-year Treasury yields or the difference between 2-year and 10-year Treasury yields. Some research

indicates that calculating spreads using very short-term rates, such as the federal funds rate or 3-month Treasury yield,

is a more useful indicator of future economic activity than using a 2-year Treasury yield as a short-term rate.1

 In

keeping with this prior research, we will focus on the spread between the federal funds rate and the 10-year Treasury

yield when measuring the shape of the yield curve.

Inverted Yield Curves Sometimes Precede Recessions 

Historically, the shape of the yield curve has been a useful leading indicator of economic growth. For instance, the 

beginning of a recession has seldom followed a period with a steep (positively sloped) yield curve within two years (see 

Chart 1). In fact, during months in which the spread has measured at least 200 basis points (2 percentage points), a 

recession has ensued within two years only 5 percent of the time. The shape of the yield curve has also told us when 

recessions may be more likely. In Chart 1, we see that the yield curve has inverted significantly, or by at least 100 basis 

points, within two years prior to each of the past six recessions. 
 

 

 

 

 

 

 

 

d

However, the slope of the yield curve does not have a perfect track record when it comes to foretelling the future. Chart 

1 shows that the yield curve did not invert before the two recessions that occurred in the late 1950s and early 1960s, a 

period when long-term yields were exceptionally low, as they are today. The inverted yield curve during 1966, the nearinversions in both 1987 and 1995, and the inversion in 1998 are also examples of inaccurate growth signals. Surging 

job growth and falling unemployment contributed to a spike in inflation in 1966. As the Federal Reserve decreased 

money supply growth in response, the effective federal funds rate rose and the yield curve inverted briefly between 

mid-1966 and early 1967. The near-inversion in 1987 occurred during the stock market crash that year, known as Black 

Monday. The near-inversion during the mid-1990s reflected an economic soft patch that followed a 3 percentage point 

increase in the federal funds rate over a 13-month period. And, the inversion in 1998 came during the financial market 

turmoil surrounding the collapse at Long-Term Capital Management. These episodes passed without any recession 

beginning in the next two years. What this tells us is that a flattening yield curve may be a necessary, but not a 

sufficient, condition for recession. 

The Yield Curve Can Invert for Reasons Not Related to Future Economic Growth 

While inversions of the yield curve spread generally precede a recession, the yield curve can also invert for reasons not 

related to slower economic growth. Historically, short- and long-term yields tended to move in the same direction, but 

since the 1990s this relationship has been disappearing. More recently, between June 2004 and January 2006, the 

Federal Reserve gradually increased its target federal funds rate by 350 basis points, from 1 percent to 4.5 percent.2 

Yet over the same period, 10-year Treasury yields fell from 4.7 percent to 4.5 percent, which resulted in a pronounced 

flattening of the yield curve (see Chart 1). The relatively stable and low level of long-term interest rates in the presence 

of strong economic growth and rising short-term interest rates has been somewhat of a mystery to economists, even 

prompting former Federal Reserve Chairman Alan Greenspan to famously label their behavior a "conundrum."3

 Several 

explanations have been suggested for the flattening of the yield curve during the past two years. 

Low Term Premium 

First, some have speculated that increased stability in global financial markets has resulted in a low term 

premium. The term premium is the additional yield required by investors for purchasing long-term securities. To 

compensate for the fact that an investor is exposed to more risks over a 10-year investment horizon relative to a 

3-month investment horizon, yields on longer-dated securities tend to be greater than the yields on similar, but 

shorter-dated, securities. Research by the Federal Reserve indicates that investors may have become more 

willing to invest long term in recent years, perhaps encouraged by recent stability in economic conditions and 

financial markets.4

 Alternatively, financial market innovations such as derivatives may provide investors the 
 

 

 

 

 

means to reduce long-term investment risk. As a result, increased demand for long-term securities has caused 

yields on these securities to fall. 

Low Inflation Expectations 

Second, the flatness of the yield curve could be due to the easing of long-term inflation expectations, which are 

an important component of the term premium. Since inflation erodes the future value of an investment, investors 

require an inflation premium in the form of higher long-term interest rates to compensate for this lost value. 

However, according to the Philadelphia Fed survey of professional economic forecasters, long-term inflation 

expectations have steadily declined over the past 10 years. If market participants expect inflation to remain low 

in the future, then they will require a lower inflation premium to compensate them for future inflation. 

Demand from Foreign Central Banks 

Third, foreign central banks have continued to maintain strong demand for U.S. securities, especially long-term 

Treasuries. Central banks in Japan, China, and Europe have been major purchasers of Treasuries and have 

generally purchased Treasury notes and bonds rather than short-term bills.5

 For example, at the end of 1999, 

China held $52 billion worth of U.S. Treasury securities. By November 2005, China’s holdings of these securities 

totaled $250 billion, an increase of nearly 400 percent. Similarly, Japan increased its holdings from $320 billion 

at year-end 1999 to $682 billion by November 2005. Central banks in many large European countries also have 

increased their holdings of U.S. Treasury securities. This steady source of demand has, by supporting the price 

of Treasury securities, kept a lid on long-term interest rates. 

Investment Activities by Pension Funds and Hedge Funds 

Fourth, investment activities by pension funds and hedge funds could be depressing long-term yields. Pension 

funds across the United States and Europe have increasingly sought to match the durations of their liabilities 

with their assets.6 Given the long durations of pension liabilities, many funds have sought to invest in long-term 

Treasury bonds to better match the timing of their future liabilities. Hedging and investment activities by funds 

and corporations have tended to flatten the yield curve as well. For example, many hedge funds may take 

positions in long-term U.S. Treasury securities in order to execute investment strategies, thus generating extra 

demand.7 

Although these explanations clarify why long-term interest rates have remained comparatively low, their influence is 

hard to isolate from investor concerns about a possible slowdown in economic growth. It is important to understand the 

reasons why the yield curve flattens or inverts so that we can fully grasp its predictive power as a leading economic 

indicator. Because of our uncertainty, it is essential to view the yield curve in conjunction with other economic and 

financial statistics to avoid misreading the tea leaves. At this time, other leading economic indicators are not raising 

recession concerns.8 

The Yield Curve and Banks 

Just as the yield curve is not a perfect indicator of future economic growth, it also does not provide perfect foresight as 

to how bank net interest margins (NIMs) and earnings will fluctuate. The traditional view of the banking business holds 

that banks pay interest on their deposits based upon shorter-term interest rates while making loans tied to longer-term 

interest rates. Thus, the difference between interest paid and received—the margin—should be influenced by the slope 

of the yield curve. There is some empirical support for this view. For instance, Chart 2 shows that, until recently, overall 

bank NIM declined over a period of three to six months following a drop in the yield curve spread. 
 

 

 

 

 

 

 

 

 

 

d

The fairly tight correlation between changes in the yield curve and NIMs, however, generally held true only through the 

mid-1990s. It has weakened since then. The correlation between changes in the yield curve spread and bank NIMs 

with a two-quarter lag was 70 percent between 1984 and 1994. Since 1994, the correlation has fallen to negative 17 

percent, suggesting that there has been very little systematic relationship between NIMs and changes in the yield curve 

spread over the past decade. For example, since the yield curve began to flatten during mid-2004, NIMs at FDICinsured institutions have risen from just under 4.00 percent to 4.14 percent in third quarter 2005. 

Some analysts assert that bank earnings have become less sensitive to changes in the slope of the yield curve. Recent 

FDIC research finds that banks react differently to changes in interest rates based on their asset size and their ability to 

offer various types of customer products.9 International research supports this finding. Banks in major industrialized 

countries have become better able to shield themselves against adverse changes in the slope of the yield curve over 

time.10 As a result, the yield curve appears to have lost some of its usefulness as an indicator of the banking industry’s 

overall health and profitability. 

Large Bank Net Interest Margins Have Been Squeezed by the Flat Yield Curve 

A flat or inverted yield curve spread can impact individual banks in different ways. For example, looking at Chart 3, we 

can see that median NIMs have behaved differently based on bank size. Since mid-2004, the median NIM for banks 

with total assets over $10 billion has fallen in tandem with the flattening yield curve, while those for institutions with total 

assets under $10 billion have increased. But why have only the largest banks responded in typical fashion to a flatter 

yield curve? Chart 4 adds some insight to this disparity. The median yield on assets at banks exceeding $10 billion in 

size has consistently been about 50 basis points below that of smaller banks since 2004. At the same time, the relative 

cost of funding those assets at the largest banks has risen faster over the same period. As a result, median large bank 

NIMs have been compressed relative to their smaller peers. These two aspects are discussed in more detail below. 
 

 

 

d

d

Yields on Assets Have Been Lower for Large Banks 

In 2000, banks in varying size groups had similar median asset yields, but the rate of decline in asset yields 

between 2001 and 2003 was the greatest for the largest institutions. Further, these large institutions have been 

slow to close the resulting gap since yields began to rise again in 2004. This may be due to the fact that larger 

banks have a different asset composition than smaller banks. For example, large banks tend to have higher 

concentrations of commercial and industrial (C&I) loans and credit card receivables. The C&I lending 

environment, especially for large loans exceeding $1 million, has been very competitive in recent years.11 Not 

only do banks compete against other banks, but they also compete against capital markets, which have become 

a popular source of funding for corporations. Lending standards, and particularly the rates charged on business 

loans, have generally fallen because of this highly competitive environment. In addition, many corporations have 

experienced increases in their cash balances in recent years, creating less incentive to reach out to banks for 
 

 

 

 

 

financing. This strong corporate cash position has weighed on C&I loan growth. Thus, it is likely that weaker 

pricing and volume growth have together caused the median asset yield at large commercial lenders to lag 

behind that of their smaller peers. 

Funding Costs Have Risen More Quickly for Large Banks 

The second factor that explains why large and small bank NIMs have behaved differently concerns the cost of 

funding assets. Chart 4 indicates that funding costs at large banks were below that of small banks between 2001 

and 2003. However, since early 2004, funding costs at large banks have risen much faster relative to small 

banks. Large banks have a greater reliance on overnight and wholesale funding than smaller banks. These 

funds tend to reprice faster than longer-term deposits, such as certificates of deposit and money market 

accounts, when short-term interest rates rise. As a result, smaller institutions may be able to reprice their 

deposits at a slower rate relative to larger institutions, thus preserving (and even boosting) their margins, at least 

for a time. 

Banks Have Reduced Their Exposure to Changes in the Yield Curve 

Major changes in the past two decades have greatly reduced the effect of shifts in the yield curve on banks. Changing 

banking regulations, product differentiation, new asset/liability management practices, and increased use of noninterest-bearing funding sources have helped financial institutions mitigate the yield curve’s effects on profits. 

Changing Banking Regulations Have Allowed Banks to Find New Sources of Income 

During the 1980s, the banking industry went through a series of structural changes that had meaningful 

economic and financial impacts.12 The Depository Institutions and Deregulation and Monetary Control Act of 

1980 allowed banks to pay interest on time and savings deposits, expanded lending and investment powers for 

institutions, and removed restrictions on statewide banking. In 1982, the Garn–St. Germain Depository 

Institutions Act increased loan limits and removed restrictions on the ability of national banks to make real estate 

loans. Interstate banking and interstate branching were fully adopted through the Riegle-Neal Interstate Banking 

and Branching Efficiency Act of 1994. More recently, the Gramm-Leach-Bliley Act of 1999 removed restrictions 

on the mergers of banks, insurance companies, and brokerages. Together, these changes allowed banks to 

develop a vast array of customer products beyond traditional lending services. As a result, the makeup of bank 

revenues has changed since the 1980s (see Table 1). Non-interest income has become a larger factor in total 

income, especially since 1990. The importance of non-interest income has been more noticeable for larger 

banks with assets exceeding $1 billion. 

Table 1 

Non-interest income has become a more important source of earnings, 

especially for larger banks. 

Ratio = Non-Interest Income / (Non-Interest 

Income + Interest Income) 

Bank Size 1985 1990 1995 2000 2005 

Under $100 Million 5.2% 5.7% 7.3% 6.7% 9.1% 

$100 million to $1 billion 6.4% 5.8% 8.1% 7.9% 10.8% 

$1 billion to $10 billion 8.9% 9.4% 12.8% 10.8% 14.1% 

Over $10 billion 9.7% 11.9% 17.9% 19.8% 25.1% 

Ratio is year-end median data for each asset size group. 

Source:FDIC 

Product Differentiation Has Allowed Banks of All Sizes to Increase Non-Interest Income 

Although the largest banks have traditionally benefited most from non-interest income, this trend may be 

changing. Increased telecommunication speeds and the development of new information technologies have 
 

 

 

 

 

 

reduced the cost of offering new products to customers for banks of all sizes. These technologies also allow 

bankers to maximize fee-based revenues across a diverse customer base. In recent years, smaller banks have 

increasingly sought to diversify into non-traditional banking services. In part because of cheaper and better 

technologies, some small- and medium-sized lenders have expanded their product mix to include insurance and 

investment activities, further diversifying their sources of non-interest income. 

New Asset/Liability Management Techniques Have Helped Reduce the Risks of Changes in the Yield 

Curve Spread 

On top of an increased reliance on fee and other non-interest income, banks have additional means to reduce 

the impact of yield curve changes on profits. For example, many banks, especially the large ones, have been 

able to hedge their interest rate exposure by using derivatives such as interest rate swaps.13 Banks have also 

been able to reduce the effect of interest rate moves by directly selling their fixed-rate loans to investors or by 

securitizing the loans into financial instruments such as mortgage-backed securities. Further, banks have been 

able to more narrowly adjust the costs and durations of deposits and loans. Federal Home Loan Bank advances 

have provided banks a flexible source of fixed-rate funding with average durations exceeding that of their core 

deposits. Access to these alternative funding sources has helped insulate bank funding from interest rate shifts, 

as traditional deposits may be more exposed to the risks of short-term interest rate volatility. On the asset side, 

banks have been increasingly offering variable-rate loans, such as adjustable-rate mortgages (ARMs), where in 

the past they may have only offered loans tied to a long-term fixed rate. Since ARMs reprice faster than 

traditional fixed-rate mortgages, NIMs may not contract by as much as they otherwise would when the yield 

curve flattens. 

Use of Non-Interest-Bearing Liabilities Has Helped Support Net Interest Margins 

Finally, greater use of non-interest-bearing funding sources, such as demand deposits and equity, may be 

supporting NIMs. Chart 5 divides NIM into two separate components to help explain why margins have risen 

despite a flattening yield curve.14 The first component, the NIM on interest-bearing liabilities, is the net return on 

assets funded by interest-bearing liabilities (for example, certificates of deposits and money market accounts). In 

essence, this component represents the traditional view of the banking business. Since 2001, the NIM on 

interest-bearing liabilities has steadily weighed on net interest margins as the spread between the prices paid on 

liabilities and the yield received on assets narrowed. 

The second component of NIM, the NIM on non-interest-bearing liabilities, is the net return on assets funded by 

non-interest liabilities (for example, equity and demand deposits). Because market rates on assets increased 

and these liabilities carried no explicit interest cost, this component helped to offset the reduction in overall NIMs 

resulting from the first component. Thus, banks may have been able to offset at least some of the compression 

in the total NIM by funding more of their assets through non-interest-bearing liabilities. In particular, corporate 

demand deposits that would normally be swept into interest-bearing, non-deposit investments have accumulated 

on bank balance sheets during a period of historically low short-term interest rates. But as is evident in the 

scales of the two charts, the overall industry impact has been small. The share of NIM tied to non-interestbearing liabilities has only risen to 24 percent, from 18 percent in 2003, accounting for an increase in NIMs of 

only 17 basis points versus a drop of 26 basis points in the NIM associated with interest-bearing liabilities. 
 

 

 

 

d

Conclusion 

History suggests that the odds of recession increase when the yield curve spread flattens or becomes inverted. But 

past recessions only occurred with a high frequency after the curve inverted by a significant amount for a sustained 

period of time. Further, the yield curve spread can invert for reasons other than the possibility of slower economic 

growth. We have presented some of these possible explanations, which include expectations of lower long-term 

inflation, a recent reduction in the term premium, strong demand for longer-term debt by foreign central banks, and 

investment activities by pension and hedge funds. As a result, the flat yield curve spread may not be signaling 

increased odds of a recession at present. By the same token, the structural forces holding long-term interest rates 

down may be with us for some time, even as the cyclical increase in short-term rates subsides. The presence of these 

structural forces suggests that a flat yield curve could persist for some time. 

Similarly for banks, flat or inverted yield curves have historically been associated with narrowing NIMs and lower 

earnings. Many smaller banks thus far have been able to insulate themselves from changes in the yield curve spread, 

because they have only slowly raised the interest rates they pay on their liabilities. In contrast, the largest banks have 

seen their liability costs rise more rapidly, while at the same time their asset yields have lagged those for smaller banks. 

This situation has resulted in a classic margin squeeze for the largest banks as the yield curve has flattened. Even so, it 

may be just a matter of time before margins for smaller banks begin to be squeezed, especially if the flat yield curve 

persists. Regardless of the slope of the existing yield curve—positive, flat, or negative—bankers will benefit from 

strategies designed to cope with the uncertainty of changing interest rates. 

Endnotes 

1

 Arturo Estrella and F.S. Mishkin, “Predicting U.S. Recessions: Financial Variables as Leading Indicators,” Review of 

Economics and Statistics, February 1998. Also see: Arturo Estrella, 

http://www.ny.frb.org/research/capital_markets/ycfaq.html October 2005. 
 

 

 

 

 

2 Statements from the Federal Open Market Committee indicate that the committee began to raise its target interest 

rate in June 2004 to remove accommodative monetary policy. See: http://www.federalreserve.gov/fomc/. 

3

 Testimony of Alan Greenspan, Federal Reserve Board's Semiannual Monetary Policy Report to the Congress 

http://www.federalreserve.gov/boarddocs/hh/2005/february/testimony.html, February 16, 2005. 

4

 Testimony of Alan Greenspan, Federal Reserve Board's Semiannual Monetary Policy Report to the Congress 

http://www.federalreserve.gov/boarddocs/hh/2005/july/testimony.html, July 20, 2005. 

5 U.S. Treasury, Treasury International Capital System (TIC) data. 

6 “U.K. 50-Year Borrowing Cost to Fall on Pension Demand,” Bloomberg, December 5, 2005. 

7 This extra demand is evidenced by strong demand of U.S. Treasuries by Caribbean banking centers, which some 

analysts believe largely consist of offshore hedge funds. Some of these hedge funds may be engaging in the carry 

trade, which involves taking a long position in a long-term Treasury security while simultaneously taking a short position 

in a short-term Treasury security. 

8 For example, the Economic Cycle Research Institute’s weekly leading index moved higher in January, and the Index 

of Leading Economic Indicators, which includes the yield curve spread as one of its components, was not signaling 

recession in late 2005. 

9 Furthermore, bank earnings are more sensitive to changes in credit conditions than to changes in interest rates. See: 

Gerald Hanweck and Lisa H. Ryu, The Sensitivity of Bank Net Interest Margins and Profitability to Credit, Interest-Rate, 

and Term-Structure Shocks across Bank Product Specializations, 

https://www.fdic.gov/bank/analytical/working/index.html Federal Deposit Insurance Corporation, Working Paper 05-02, 

January 2005. 

10 For example, banks have adopted new ways of selecting assets and liabilities, modifying the manner in which they 

set rates on core deposits and retail loans, and engaging in hedging activities. See: William B. English, Interest Rate 

Risk and Bank Net Interest Margins, Bank of International Settlements Quarterly Review, December 2002. 

“http://www.bis.org/publ/qtrpdf/r_qt0212.pdf. 

11 See: Federal Reserve, Senior Loan Officer Opinion Survey on Bank Lending 

Practiceshttp://www.federalreserve.gov/boarddocs/SnLoanSurvey/, October 2004. 

12 History of the 1980s – Lessons for the Future, Vol. I https://www.fdic.gov/bank/historical/history/, Federal Deposit 

Insurance Corporation, December 1997. 

13 While almost 900 institutions report holdings of derivatives, the vast majority of these holdings are at banks with 

assets over $10 billion. See: FDIC Quarterly Banking Profile https://www.fdic.gov/bank/analytical/qbp/, Federal Deposit 

Insurance Corporation, Third Quarter 2005. 

14 This analysis updates work originally published in: “Profits and Balance Sheet Developments at U.S. Commercial 

Banks in 2003,” Federal Reserve, Federal Reserve Bulletin, Spring 2004. 

Disclaimer

The views expressed in FYI are those of the authors and do not necessarily reflect official positions of the 

Federal Deposit Insurance Corporation. Some of the information used in the preparation of this publication 

was obtained from publicly available sources that are considered reliable. However, the use of this 

information does not constitute an endorsement of its accuracy by the Federal Deposit Insurance Corporation. 

Last Updated 12/03/2018 
Chart 1

A flat or inverted yield curve has historically been 

associated with a higher frequency of U.S. recession within 

one to two years.

Date (yyyymm)

Recession 

Indicator: 1 = 

recession; -1 = 

no recession

Treasury yield 

curve: 10-year 

Treasury yield 

minus effective 

federal funds rate 

(percentage 

points)

195407 -1 1.50

195408 -1 1.14

195409 -1 1.32

195410 -1 1.58

195411 -1 1.65

195412 -1 1.23

195501 -1 1.22

195502 -1 1.36

195503 -1 1.33

195504 -1 1.32

195505 -1 1.33

195506 -1 1.14

195507 -1 1.22

195508 -1 1.01

195509 -1 0.79

195510 -1 0.64

195511 -1 0.54

195512 -1 0.48

195601 -1 0.45

195602 -1 0.34

195603 -1 0.46

195604 -1 0.56

195605 -1 0.32

195606 -1 0.29

195607 -1 0.36

195608 -1 0.60

195609 -1 0.43

195610 -1 0.38

195611 -1 0.61

195612 -1 0.65

195701 -1 0.62

195702 -1 0.34
195703

-1 0.45

195704-1 0.48

195705-1 0.60

195706-1 0.80

195707-1 0.94

1957081 0.69

1957091 0.45

1957101 0.47

1957111 0.44

1957121 0.23

1958011 0.37

1958021 1.38

1958031 1.78

1958041 1.62

195805-1 2.29

195806-1 2.04

195807-1 2.52

195808-1 2.01

195809-1 2.00

195810-1 2.00

195811-1 1.47

195812-1 1.44

195901-1 1.54

195902-1 1.53

195903-1 1.19

195904-1 1.16

195905-1 1.41

195906-1 0.95

195907-1 0.93

195908-1 0.93

195909-1 0.92

195910-1 0.55

195911-1 0.53

195912-1 0.70

196001-1 0.73

196002-1 0.52

196003-1 0.41

1960041 0.36

1960051 0.50

1960061 0.83

1960071 0.67
196008

1 0.82

1960091 1.20

1960101 1.42

1960111 1.49

1960121 1.86

1961011 2.39

1961021 1.24

196103-1 1.72

196104-1 2.29

196105-1 1.73

196106-1 2.15

196107-1 2.75

196108-1 2.04

196109-1 2.10

196110-1 1.66

196111-1 1.33

196112-1 1.73

196201-1 1.93

196202-1 1.67

196203-1 1.08

196204-1 1.06

196205-1 1.51

196206-1 1.23

196207-1 1.30

196208-1 1.05

196209-1 1.08

196210-1 1.03

196211-1 0.98

196212-1 0.93

196301-1 0.91

196302-1 0.92

196303-1 0.95

196304-1 1.07

196305-1 0.93

196306-1 1.00

196307-1 1.00

196308-1 0.51

196309-1 0.60

196310-1 0.61

196311-1 0.64

196312-1 0.75
196401

-1 0.69

196402-1 0.67

196403-1 0.79

196404-1 0.76

196405-1 0.70

196406-1 0.67

196407-1 0.77

196408-1 0.69

196409-1 0.75

196410-1 0.83

196411-1 0.63

196412-1 0.33

196501-1 0.29

196502-1 0.23

196503-1 0.17

196504-1 0.11

196505-1 0.11

196506-1 0.17

196507-1 0.11

196508-1 0.13

196509-1 0.28

196510-1 0.27

196511-1 0.35

196512-1 0.30

196601-1 0.19

196602-1 0.23

196603-1 0.22

196604-1 0.08

196605-1-0.12

196606-1-0.36

196607-1-0.28

196608-1-0.31

196609-1-0.22

196610-1-0.52

196611-1-0.60

196612-1-0.56

196701-1-0.36

196702-1-0.37

196703-1 0.01

196704-1 0.54

196705-1 0.91
196706

-1 1.04

196707-1 1.37

196708-1 1.38

196709-1 1.31

196710-1 1.60

196711-1 1.62

196712-1 1.19

196801-1 0.93

196802-1 0.85

196803-1 0.69

196804-1-0.12

196805-1-0.24

196806-1-0.35

196807-1-0.52

196808-1-0.61

196809-1-0.32

196810-1-0.33

196811-1-0.12

196812-1 0.01

196901-1-0.26

196902-1-0.42

196903-1-0.49

196904-1-1.24

196905-1-2.35

196906-1-2.33

196907-1-1.89

196908-1-2.50

196909-1-1.99

196910-1-1.90

196911-1-1.71

1969121-1.32

1970011-1.19

1970021-1.74

1970031-0.69

1970041-0.71

1970051-0.03

1970061 0.24

1970071 0.25

1970081 0.92

1970091 1.10

1970101 1.13
197011

1 1.24

197012-1 1.49

197101-1 2.10

197102-1 2.39

197103-1 1.99

197104-1 1.68

197105-1 1.76

197106-1 1.61

197107-1 1.42

197108-1 1.02

197109-1 0.59

197110-1 0.73

197111-1 0.90

197112-1 1.79

197201-1 2.45

197202-1 2.79

197203-1 2.24

197204-1 2.02

197205-1 1.86

197206-1 1.65

197207-1 1.56

197208-1 1.41

197209-1 1.68

197210-1 1.44

197211-1 1.22

197212-1 1.03

197301-1 0.52

197302-1 0.06

197303-1-0.38

197304-1-0.45

197305-1-0.99

197306-1-1.59

197307-1-3.27

197308-1-3.10

197309-1-3.69

197310-1-3.22

1973111-3.30

1973121-3.21

1974011-2.66

1974021-2.01

1974031-2.14
197404

1-3.00

1974051-3.73

1974061-4.39

1974071-5.12

1974081-3.97

1974091-3.30

1974101-2.16

1974111-1.77

1974121-1.10

1975011 0.37

1975021 1.15

1975031 2.19

197504-1 2.74

197505-1 2.84

197506-1 2.31

197507-1 1.96

197508-1 2.26

197509-1 2.19

197510-1 2.32

197511-1 2.83

197512-1 2.80

197601-1 2.87

197602-1 3.02

197603-1 2.89

197604-1 2.74

197605-1 2.60

197606-1 2.38

197607-1 2.52

197608-1 2.48

197609-1 2.34

197610-1 2.39

197611-1 2.34

197612-1 2.22

197701-1 2.60

197702-1 2.71

197703-1 2.77

197704-1 2.64

197705-1 2.11

197706-1 1.89

197707-1 1.91

197708-1 1.50
197709

-1 1.20

197710-1 1.05

197711-1 1.07

197712-1 1.13

197801-1 1.26

197802-1 1.25

197803-1 1.25

197804-1 1.26

197805-1 0.99

197806-1 0.86

197807-1 0.83

197808-1 0.37

197809-1-0.03

197810-1-0.32

197811-1-0.95

197812-1-1.02

197901-1-0.97

197902-1-0.96

197903-1-0.97

197904-1-0.83

197905-1-0.99

197906-1-1.38

197907-1-1.52

197908-1-1.91

197909-1-2.10

197910-1-3.47

197911-1-2.53

197912-1-3.39

1980011-3.02

1980021-1.72

1980031-4.44

1980041-6.14

1980051-0.80

1980061 0.31

1980071 1.22

198008-1 1.49

198009-1 0.64

198010-1-1.06

198011-1-3.17

198012-1-6.06

198101-1-6.51
198102

-1-2.74

198103-1-1.58

198104-1-2.04

198105-1-4.42

198106-1-5.63

1981071-4.76

1981081-2.88

1981091-0.55

1981101 0.07

1981111 0.08

1981121 1.35

1982011 1.37

1982021-0.35

1982031-0.82

1982041-1.07

1982051-0.83

1982061 0.15

1982071 1.36

1982081 2.93

1982091 2.03

1982101 1.20

1982111 1.35

198212-1 1.59

198301-1 1.78

198302-1 2.21

198303-1 1.74

198304-1 1.60

198305-1 1.75

198306-1 1.87

198307-1 2.01

198308-1 2.29

198309-1 2.20

198310-1 2.06

198311-1 2.35

198312-1 2.36

198401-1 2.11

198402-1 2.25

198403-1 2.41

198404-1 2.34

198405-1 3.09

198406-1 2.50
198407

-1 2.13

198408-1 1.08

198409-1 1.22

198410-1 2.17

198411-1 2.14

198412-1 3.12

198501-1 3.03

198502-1 3.01

198503-1 3.28

198504-1 3.16

198505-1 2.88

198506-1 2.63

198507-1 2.43

198508-1 2.43

198509-1 2.45

198510-1 2.25

198511-1 1.73

198512-1 0.99

198601-1 1.05

198602-1 0.84

198603-1 0.30

198604-1 0.31

198605-1 0.86

198606-1 0.88

198607-1 0.74

198608-1 1.00

198609-1 1.56

198610-1 1.58

198611-1 1.21

198612-1 0.20

198701-1 0.65

198702-1 1.15

198703-1 1.12

198704-1 1.65

198705-1 1.76

198706-1 1.67

198707-1 1.87

198708-1 2.03

198709-1 2.20

198710-1 2.23

198711-1 2.17
198712

-1 2.22

198801-1 1.84

198802-1 1.63

198803-1 1.79

198804-1 1.85

198805-1 2.00

198806-1 1.41

198807-1 1.31

198808-1 1.25

198809-1 0.79

198810-1 0.50

198811-1 0.61

198812-1 0.35

198901-1-0.02

198902-1-0.19

198903-1-0.49

198904-1-0.66

198905-1-0.95

198906-1-1.25

198907-1-1.22

198908-1-0.88

198909-1-0.83

198910-1-0.83

198911-1-0.68

198912-1-0.61

199001-1-0.02

199002-1 0.23

199003-1 0.31

199004-1 0.53

199005-1 0.58

199006-1 0.19

1990071 0.32

1990081 0.62

1990091 0.69

1990101 0.61

1990111 0.58

1990121 0.77

1991011 1.18

1991021 1.60

1991031 1.99

199104-1 2.13
199105

-1 2.29

199106-1 2.38

199107-1 2.45

199108-1 2.24

199109-1 2.20

199110-1 2.32

199111-1 2.61

199112-1 2.66

199201-1 3.00

199202-1 3.28

199203-1 3.56

199204-1 3.75

199205-1 3.57

199206-1 3.50

199207-1 3.59

199208-1 3.29

199209-1 3.20

199210-1 3.49

199211-1 3.78

199212-1 3.85

199301-1 3.58

199302-1 3.23

199303-1 2.91

199304-1 3.01

199305-1 3.04

199306-1 2.92

199307-1 2.75

199308-1 2.65

199309-1 2.27

199310-1 2.34

199311-1 2.70

199312-1 2.81

199401-1 2.70

199402-1 2.72

199403-1 3.14

199404-1 3.41

199405-1 3.17

199406-1 2.85

199407-1 3.04

199408-1 2.77

199409-1 2.73
199410

-1 2.98

199411-1 2.67

199412-1 2.36

199501-1 2.25

199502-1 1.55

199503-1 1.22

199504-1 1.01

199505-1 0.62

199506-1 0.17

199507-1 0.43

199508-1 0.75

199509-1 0.40

199510-1 0.28

199511-1 0.13

199512-1 0.11

199601-1 0.09

199602-1 0.59

199603-1 0.96

199604-1 1.29

199605-1 1.50

199606-1 1.64

199607-1 1.47

199608-1 1.42

199609-1 1.53

199610-1 1.29

199611-1 0.89

199612-1 1.01

199701-1 1.33

199702-1 1.23

199703-1 1.30

199704-1 1.38

199705-1 1.21

199706-1 0.93

199707-1 0.70

199708-1 0.76

199709-1 0.67

199710-1 0.53

199711-1 0.36

199712-1 0.31

199801-1-0.02

199802-1 0.06
199803

-1 0.16

199804-1 0.19

199805-1 0.16

199806-1-0.06

199807-1-0.08

199808-1-0.21

199809-1-0.70

199810-1-0.54

199811-1 0.00

199812-1-0.03

199901-1 0.09

199902-1 0.24

199903-1 0.42

199904-1 0.44

199905-1 0.80

199906-1 1.14

199907-1 0.80

199908-1 0.87

199909-1 0.70

199910-1 0.91

199911-1 0.61

199912-1 0.98

200001-1 1.21

200002-1 0.79

200003-1 0.41

200004-1-0.03

200005-1 0.17

200006-1-0.43

200007-1-0.49

200008-1-0.67

200009-1-0.72

200010-1-0.77

200011-1-0.79

200012-1-1.16

200101-1-0.82

200102-1-0.39

2001031-0.42

2001041 0.34

2001051 1.18

2001061 1.31

2001071 1.47
200108

1 1.32

2001091 1.66

2001101 2.08

2001111 2.56

200112-1 3.27

200201-1 3.31

200202-1 3.17

200203-1 3.55

200204-1 3.46

200205-1 3.41

200206-1 3.18

200207-1 2.92

200208-1 2.52

200209-1 2.12

200210-1 2.19

200211-1 2.71

200212-1 2.79

200301-1 2.81

200302-1 2.64

200303-1 2.56

200304-1 2.70

200305-1 2.31

200306-1 2.11

200307-1 2.97

200308-1 3.42

200309-1 3.26

200310-1 3.28

200311-1 3.30

200312-1 3.29

200401-1 3.15

200402-1 3.07

200403-1 2.83

200404-1 3.35

200405-1 3.72

200406-1 3.70

200407-1 3.24

200408-1 2.85

200409-1 2.52

200410-1 2.34

200411-1 2.26

200412-1 2.07
200501 -1 1.94

200502 -1 1.67

200503 -1 1.87

200504 -1 1.55

200505 -1 1.14

200506 -1 0.96

200507 -1 0.92

200508 -1 0.76

200509 -1 0.58

200510 -1 0.68

200511 -1 0.54

200512 -1 0.31

200601 -1 0.14

200601 -1 0.14

Source: FDIC calculations based on Federal Reserve data (via Haver Analytics).
Chart 2 

Net interest margins have become less sensitive to 

changes in the yield curve spread over the past 10 years.

Date (YYYYMM)

Median net interest 

margin for all 

insured institutions 

(percent)

Yield curve spread: 

10-year Treasury 

yield minus 

effective federal 

funds rate (basis 

points)

198403 4.16 225.667

198406 4.4 264.333

198409 4.39 147.667

198412 4.25 247.667

198503 4.31 310.667

198506 4.49 289

198509 4.55 243.667

198512 4.44 165.667

198603 4.3 73

198606 4.26 68.333

198609 4.17 110

198612 4.11 99.667

198703 4.06 97.333

198706 4.14 169.333

198709 4.17 203.333

198712 4.16 220.667

198803 4.04 175.333

198806 4.1 175.333

198809 4.23 111.667

198812 4.22 48.667

198903 4.23 -23.333

198906 4.26 -95.333

198909 4.18 -97.667

198912 4.16 -70.667

199003 4.09 17.333

199006 4.18 43.333

199009 4.2 54.333

199012 4.2 65.333

199103 4.09 159

199106 4.2 226.667

199109 4.33 229.667

199112 4.31 253

199203 4.39 328
199206 4.52 360.667

199209 4.62 336

199212 4.63 370.667

199303 4.52 324

199306 4.58 299

199309 4.56 255.667

199312 4.48 261.667

199403 4.35 285.333

199406 4.5 314.333

199409 4.61 284.667

199412 4.61 267

199503 4.52 167.333

199506 4.48 60

199509 4.46 52.667

199512 4.46 17.333

199603 4.35 54.667

199606 4.43 147.667

199609 4.49 147.333

199612 4.48 106.333

199703 4.38 128.667

199706 4.48 117.333

199709 4.49 71

199712 4.45 40

199803 4.325 6.667

199806 4.35 9.667

199809 4.35-33

199812 4.25-19

199903 4.13 25

199906 4.23 79.333

199909 4.32 79

199912 4.33 83.333

200003 4.28 80.333

200006 4.34-9.667

200009 4.28-62.667

200012 4.2-90.667

200103 4.06-54.333

200106 4.05 94.333

200109 4.09 148.333

200112 4.12 263.667

200203 4.12 334.333

200206 4.25 335
200209 4.26 252

200212 4.16 256.333

2003034 267

200306 3.99 237.333

2003094 321.667

200312 4.02 329

200403 3.96 301.667

200406 3.99 359

200409 4.07 287

200412 4.09 222.333

200503 4.03 182.667

200506 4.1 121.667

200509 4.14 75.333

Source: FDIC
Chart 3 

Net interest margins for varying asset size groups are 

diverging after a decade of convergence.

Date

(YYYYMM)

Net 

interest 

margin for 

banks 

with 

assets 

under 

$100 

million 

(percent)

Net interest 

margin for 

banks with 

assets 

between 

$100 

million and 

$1 billion 

(percent)

Net 

interest 

margin 

for 

banks 

with 

assets 

between 

$1 

billion 

and $10 

billion 

(percent)

Net 

interest 

margin 

for 

banks 

with 

assets 

over $10 

billion 

(percent)

198403 4.3100 3.53 2.97 2.7

198406 4.5500 3.8 3.125 2.78

198409 4.5400 3.8 3.165 2.7

198412 4.4100 3.65 3.16 3.11

198503 4.4800 3.645 2.84 2.805

198506 4.6500 3.84 3.17 2.9

198509 4.7400 3.88 3.07 2.85

198512 4.6000 3.88 3.205 2.86

198603 4.4600 3.77 3.28 2.785

198606 4.4100 3.77 3.25 2.815

198609 4.3300 3.68 3.305 2.68

198612 4.2500 3.68 3.305 2.88

198703 4.1900 3.64 3.27 2.78

198706 4.2600 3.77 3.43 2.66

198709 4.3000 3.77 3.35 2.55

198712 4.2800 3.75 3.38 2.58

198803 4.1600 3.59 3.27 2.45

198806 4.2300 3.71 3.32 2.46

198809 4.3500 3.88 3.405 2.435

198812 4.3300 3.92 3.4 3.085

198903 4.3400 3.94 3.435 2.585

198906 4.3700 3.95 3.4 2.37

198909 4.3100 3.85 3.28 2.715

198912 4.2800 3.86 3.33 2.98

199003 4.2000 3.82 3.39 3.03

199006 4.2800 3.91 3.42 3.01

199009 4.3100 3.96 3.44 3.055

199012 4.3000 3.94 3.45 3.28
199103 4.1700 3.9 3.515 3.22

199106 4.2900 4 3.62 3.46

199109 4.4200 4.11 3.78 3.44

199112 4.3900 4.13 3.82 3.71

199203 4.4700 4.25 3.91 3.76

199206 4.5900 4.38 4.09 3.79

199209 4.7100 4.46 4.22 3.99

199212 4.6900 4.52 4.31 4.27

199303 4.5700 4.44 4.27 4.175

199306 4.6200 4.48 4.32 4.13

199309 4.6300 4.42 4.27 3.995

199312 4.5400 4.38 4.28 3.935

199403 4.3900 4.27 4.19 3.77

199406 4.5600 4.42 4.28 3.965

199409 4.6700 4.5 4.31 4.01

199412 4.6800 4.51 4.26 4.045

199503 4.6000 4.395 4.19 3.86

199506 4.5600 4.37 4.15 3.805

199509 4.5400 4.37 4.16 3.835

199512 4.5100 4.38 4.23 3.81

199603 4.3900 4.29 4.16 3.93

199606 4.4800 4.37 4.19 3.95

199609 4.5600 4.41 4.22 3.99

199612 4.5400 4.42 4.21 4.075

199703 4.4200 4.32 4.11 4.12

199706 4.5400 4.415 4.14 4.07

199709 4.5600 4.4 4.14 4.06

199712 4.5100 4.37 4.14 4.1

199803 4.3900 4.27 4.05 4.01

199806 4.4200 4.29 4.09 3.98

199809 4.4200 4.27 4.12 3.95

199812 4.3000 4.205 4.01 3.93

199903 4.1600 4.11 3.97 3.93

199906 4.2600 4.21 4.06 3.915

199909 4.3800 4.26 4.035 3.935

199912 4.3900 4.27 4.01 3.915

200003 4.3600 4.21 3.94 3.83

200006 4.4300 4.25 3.95 3.87

200009 4.3800 4.17 3.885 3.83

200012 4.3000 4.09 3.82 3.71

200103 4.1300 4 3.82 3.785
200106 4.1100 4.02 3.905 3.9

200109 4.1100 4.07 3.93 3.9

200112 4.1200 4.13 4.03 3.94

200203 4.1200 4.14 3.97 4.02

200206 4.2800 4.24 4.055 4.02

200209 4.3200 4.23 3.985 3.97

200212 4.2100 4.14 3.91 3.82

200303 4.0400 3.99 3.785 3.71

200306 4.0600 3.96 3.72 3.6

200309 4.0700 3.965 3.66 3.62

200312 4.1000 3.99 3.74 3.615

200403 4.0300 3.935 3.72 3.52

200406 4.0800 3.96 3.73 3.55

200409 4.1600 4.04 3.785 3.52

200412 4.1700 4.06 3.825 3.55

200503 4.0900 4.01 3.76 3.53

200506 4.1700 4.09 3.815 3.445

200509 4.2300 4.12 3.82 3.415

Source: FDIC
Chart 4 

The Cost of Funding Assets has Risen Faster for Large Banks In Recent 

Quarters, Pressuring Their Net Interest Margins.

Date

Yield on 

assets for 

banks with 

assets less 

than $100 

million 

(percent)

Yield on 

assets for 

banks with 

assets 

greater than 

$100 million 

(percent)

Yield on 

assets 

for 

banks 

with 

assets 

greater 

than $10 

billion 

(percent)

Yield on 

liabilities 

for 

banks 

with 

assets 

less 

than 

$100 

million 

(percent)

Yield on 

liabilities 

for 

banks 

with 

assets 

greater 

than 

$100 

million 

(percent)

Yield on 

liabilities 

for 

banks 

with 

assets 

greater 

than $10 

billion 

(percent)

1984 

11.6 11.2 11.0 7.4 7.7 8.7

12.1 11.6 11.8 7.5 7.9 9.1

12.3 12.0 12.4 7.9 8.3 10.0

12.3 11.8 12.1 7.9 8.2 9.1

1985 

11.7 11.2 11.2 7.2 7.5 8.0

11.7 11.2 11.1 7.1 7.3 7.8

11.5 11.0 10.7 6.8 7.0 7.3

11.2 10.8 10.4 6.6 6.8 7.1

1986 

10.9 10.5 10.4 6.4 6.7 7.1

10.6 10.3 9.9 6.2 6.4 6.5

10.3 10.0 9.6 6.0 6.2 6.2

9.9 9.6 9.2 5.6 5.8 5.9

1987 

9.5 9.3 9.0 5.3 5.5 6.0

9.6 9.4 9.0 5.3 5.6 6.2

9.6 9.5 9.3 5.3 5.7 6.5

9.7 9.6 9.5 5.4 5.8 6.8

1988 

9.5 9.4 9.3 5.4 5.8 6.6

9.6 9.5 9.4 5.4 5.8 6.7

9.9 9.8 9.8 5.6 6.0 7.1

10.0 10.0 10.2 5.7 6.2 7.5

1989 

10.1 10.2 10.3 5.8 6.4 7.8

10.5 10.5 10.8 6.1 6.7 8.5

10.5 10.5 10.8 6.2 6.8 8.3

10.5 10.4 10.9 6.2 6.7 8.0

1990 

10.2 10.2 10.5 6.0 6.4 7.4

10.3 10.2 10.3 6.1 6.4 7.3

10.4 10.3 10.3 6.1 6.4 7.2

10.3 10.2 10.4 6.0 6.3 7.0

1991 9.9 9.9 9.8 5.7 5.9 6.2

9.8 9.7 9.5 5.5 5.7 5.7
9.8 9.6 9.3 5.4 5.5 5.5

9.5 9.3 8.9 5.1 5.1 4.9

1992 

8.9 8.8 8.2 4.4 4.5 4.1

8.7 8.5 7.9 4.1 4.1 3.8

8.5 8.3 7.6 3.8 3.8 3.4

8.2 8.0 7.4 3.5 3.5 3.1

1993 

7.8 7.7 7.1 3.2 3.2 2.9

7.8 7.6 7.0 3.1 3.2 2.8

7.7 7.5 6.7 3.1 3.1 2.8

7.5 7.3 6.6 3.0 3.0 2.6

1994 

7.3 7.1 6.5 2.8 2.8 2.6

7.5 7.3 6.8 2.9 2.9 2.9

7.7 7.5 7.1 3.0 3.1 3.2

7.9 7.8 7.5 3.2 3.3 3.7

1995 

8.0 7.9 7.9 3.4 3.6 4.3

8.3 8.1 8.1 3.7 3.9 4.4

8.4 8.2 8.0 3.9 4.0 4.4

8.4 8.2 8.1 3.9 4.0 4.4

1996 

8.2 8.1 7.9 3.8 3.8 4.1

8.2 8.1 7.9 3.8 3.8 4.1

8.3 8.2 7.9 3.8 3.8 4.0

8.3 8.2 8.0 3.8 3.8 4.0

1997 

8.1 8.0 7.9 3.7 3.8 3.9

8.3 8.2 8.0 3.8 3.9 4.0

8.4 8.3 8.0 3.9 3.9 4.1

8.4 8.2 8.1 3.9 3.9 4.1

1998 

8.1 8.0 7.9 3.8 3.9 4.1

8.2 8.1 7.9 3.8 3.9 4.1

8.2 8.1 7.8 3.9 3.9 4.1

8.0 7.9 7.6 3.8 3.8 3.9

1999 

7.7 7.6 7.4 3.6 3.6 3.7

7.8 7.7 7.4 3.6 3.6 3.7

7.9 7.8 7.6 3.6 3.6 3.9

8.0 7.9 7.8 3.6 3.7 4.1

2000 

8.0 7.9 8.0 3.7 3.8 4.2

8.2 8.1 8.2 3.8 4.0 4.6

8.4 8.3 8.4 4.1 4.3 4.8

8.4 8.4 8.4 4.2 4.4 4.8

2001 

8.2 8.1 8.1 4.1 4.2 4.4

8.0 7.9 7.7 3.9 3.9 3.8

7.7 7.6 7.3 3.7 3.6 3.4
7.3 7.2 6.7 3.2 3.1 2.6

2002 

6.8 6.7 6.2 2.7 2.7 2.2

6.8 6.7 6.2 2.5 2.5 2.2

6.7 6.6 6.1 2.4 2.4 2.2

6.5 6.3 5.8 2.2 2.2 1.9

2003 

6.1 6.0 5.4 2.0 2.0 1.7

5.9 5.8 5.3 1.9 1.9 1.6

5.8 5.7 5.1 1.7 1.7 1.5

5.7 5.6 5.1 1.6 1.6 1.4

2004 

5.6 5.5 5.0 1.5 1.6 1.4

5.6 5.4 5.0 1.4 1.5 1.4

5.7 5.6 5.0 1.5 1.6 1.5

5.7 5.7 5.2 1.5 1.7 1.7

2005 

5.7 5.7 5.3 1.6 1.8 1.9

5.9 6.0 5.5 1.7 2.0 2.2

6.1 6.2 5.7 1.9 2.2 2.4

Source: FDIC
Chart 5 

Use of non-interest-bearing liabilities has helped to support 

net interest margins

Year

Net interest margin on 

Interest-Bearing 

Liabilities (percent)

Net interest margin on 

Non-Interest-Bearing 

Liabilities (percent)

1997 3.45 1.17

1998 3.34 1.12

1999 3.37 1.03

2000 3.24 1.06

2001 3.47 0.89

2002 3.34 0.86

2003 3.22 0.73

2004 3.09 0.79

2005 2.96 0.90

Source: FDIC -"Profits and Balance Sheet Developments at U.S. Commercial Banks in 

2003," 

Federal Reserve, Federal Reserve Bulletin, Spring 2004.