Interest Rates, Yield Curves, and Bank Profitability: Evidence from the United States Banking Sector

Article DOI: https://doi.org/10.57017/jaes.v21.2(92).04

Author(s):

Olivia BROWN Information Systems Management, Heinz College of Information Systems and Public Policy Carnegie Mellon University , USA
Brandon C. KOFORD Department of Economics, John B. Goddard School of Business & Economics, Weber State University, USA

Abstract:

This paper investigates the effect of monetary policy on the profitability of US banks from 2004 to 2023, a period that includes the Financial Crisis, a prolonged low-rate environment, and the rate hikes following the COVID-19 pandemic. Using annual data for all US banks, we analyse how the Federal Funds Rate and the yield curve impact net interest income, non-interest income, loan loss provisions, and return on assets with a focus on differences across bank sizes and rate environments. We find that in normal rate environments, increases in the federal funds rate and the yield curve benefit smaller banks but reduce profitability for larger institutions. In low-rate environments, large banks show stronger gains in net interest income, likely due to more diversified funding and asset strategies. The results highlight the importance of accounting for both interest rate regimes and bank size in making and assessing monetary policy.

Copyright© 2026 The Author(s). This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.

Article’s History: Received 25th of January, 2026; Revised 12th of February, 2026; Accepted 8th of March, 2026; Available online: 30th of March, 2026. Published as article in the Volume XXI, Spring, Issue 2(92), March, 2026.

How to cite:

Brown, O., & Koford, B. C. (2026). Interest Rates, Yield Curves, and Bank Profitability: Evidence from the United States Banking Sector. Journal of Applied Economic Sciences, Volume XXI, Spring, 2(92), 447 – 467. https://doi.org/10.57017/jaes.v21.2(92).04

Funding: No external funding was received for this research.

Conflict of Interest Statement: The authors declare that there were no conflicts of interest in preparing this research

Data Availability Statement: Data used in this study are available from publicly accessible sources.

Ethical Approval Statement: This study uses only publicly available secondary data obtained from official databases, including the Federal Financial Institutions Examination Council (FFIEC), the Federal Reserve Economic Data (FRED), the US Bureau of Economic Analysis, and the US Bureau of Labor Statistics. The research does not involve human participants, personal data, or confidential institutional information. Therefore, according to standard research ethics guidelines, formal ethical approval from an institutional review board or ethics committee was not required.

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