It is believed that Fed is very likely to raise the Federal Fund rates in the next a couple of years. I wonder if the major banks like JPM BoA Citi etc., will necessarily benefit (become more profitable) from such hawkish money policies simply because they will have higher interest rates, or suffer from these policies, since less people could afford to borrow money from them.

Although this intuitively makes sense, the reason that I believe this might not be true and thus want to ask experts is that, in 2018, the share prices of those banks dipped when there was a rate hike. But I am not sure if there were any causation since the stock prices don't always reflect the fundamentals of companies/banks.


1 Answer 1


Major banks will not necessarily benefit from a rise in the federal funds rate. One way major banks make money is from the difference between the interest rates they borrow at and the rates they lend at (their net interest margin). If interest rates, including the Federal Fund rate, increase, major banks benefit if the difference between the rates increases.

By the way, higher rates don't imply lower borrowing, rates could increase due to an increase in demand for funds with static supply. Never reason from a price change.


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.