Reasons behind the drop in bank profitability in the second half of this decade include
I. flattening of the yield curve.
II. increase in competitive pressures on asset pricing.
III. increases in foreclosures in the mortgage market.
IV. increases in net interest margin.

Question

Quizplus · Accepted Answer

I, II, and III are correct because a flattening yield curve reduces the spread between what banks can earn on long-term loans versus what they pay on short-term deposits, reducing profitability. Increased competitive pressures can lower the prices banks can charge for loans, also reducing profitability. Increases in foreclosures can lead to losses on loans, further reducing profitability. IV is incorrect because an increase in net interest margin would typically increase bank profitability, not decrease it.

Reasons Behind the Drop in Bank Profitability in the Second