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Link to original“When interest rates rise, profitability in the banking sector increases,” Investopedia explains. “Banks make money by accepting cash deposits from their customers in return for interest payments and then investing that money elsewhere. The bank’s profit is the difference between the interest they pay their depositors and the yield they make through investing. Higher interest rates increase the yield on their investments.”
The current moment is an extreme example of this axiom: big banks are reaping outsize payouts from net interest income because the spread between depositor payment rates and interest rates has become so enormous.