1 Bank Stock That Benefits From Low Interest Rates
When the Federal Reserve dropped its benchmark federal funds rate from 2% to practically zero last March, most banks prepared for a significant drop in the interest income they would receive on loans, as many of their current assets repriced down with the Fed's move. But a small portion of banks actually benefited from this large rate decrease in 2020, and will continue to do so in 2021.
New York Community Bancorp (NYSE: NYCB) is one of those banks that are positioned for a nice year. And with a new CEO, it may now be in a position to shift its long-term strategy to address some of its long-standing deficiencies.
Banks are sensitive to movements in interest rates, meaning their business is directly affected by how the Federal Reserve moves the federal funds rate. Beyond that, banks can be either asset-sensitive or liability-sensitive. If a bank is asset-sensitive, that means more of its interest-earning assets, such as loans, will reprice when rates change than its interest-bearing liabilities, such as deposits. Liability-sensitive banks are the opposite. Therefore, asset-sensitive banks benefit from rising interest rates, while liability-sensitive banks benefit from falling interest rates.
Source Fool.com