A Rate Move Helps One Half of a Bank's Balance Sheet and Hurts the Other. Here's What It Does to the Stock.
Interest rate hikes can be very helpful for banks, but only under certain circumstances.
Overview
The common belief is that higher interest rates are good for bank stocks.
While that's not technically incorrect, there's more nuance to it. Yes, higher rates can help banks, but only under the right circumstances. Additionally, they only help what is typically one-half or a significant portion of a bank's revenue, a line item called net interest income (NII).
Details
Net interest income is essentially the spread banks make from the interest they pay on deposits and other interest-bearing liabilities and the interest they earn on loans and other interest-earning assets.
Source
Originally published at www.fool.com.
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