Stock Market Timing Television
Feb 21, 2023 1:01 pm
Tuesday, February 21, 2023
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Did You Know?
Banks prefer long-term interest rates to be higher than short-term interest rates because it allows them to earn a higher net interest margin. The net interest margin is the difference between the interest earned on loans and the interest paid on deposits, and it is a key source of profitability for banks.
When long-term interest rates are higher than short-term interest rates, it allows banks to borrow money at a lower short-term rate and lend it out at a higher long-term rate, resulting in a wider spread and a higher net interest margin. This is because the longer the term of the loan, the greater the risk that interest rates will change and the more compensation the lender will demand for taking on that risk.
Additionally, higher long-term interest rates can incentivize savers to lock in their deposits for longer periods, providing a more stable source of funding for banks. This stability can be beneficial for banks in managing their liquidity and reducing the risk of a sudden outflow of deposits.
Overall, banks prefer higher long-term interest rates because it allows them to earn a higher net interest margin, manage their liquidity more effectively, and reduce interest rate risk.
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