Exploring the Relationship Between Interest Rates and Commercial Bank Profitability
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School of Business |
Bachelor's thesis
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Date
2024
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Mcode
Degree programme
Rahoitus
Language
en
Pages
23+2
Series
Abstract
This study examines the relationship between interest rate changes and the prof-itability of commercial banks in the United States from 1971 to 2023, using annual financial data from over 120 banks. The analysis focuses on three key profitability measures: gross operating income, total operating expenses, and net current op-erating earnings. Ordinary least squares (OLS) regression models are applied, including control variables such as the lagged dependent variable, return on new assets, and the variance of interest rates. The results indicate that while the direct effect of inter-est rate level on bank profitability is modest, it remains statistically significant in the applied models. Notably, rising interest rates are associated with an increase in total operating expenses, which contributes to a decline in net current operating earnings.Description
Thesis advisor
Joenväärä, JuhaKeywords
commercial banks, banking sector, profitability, interest rates