These Bank Stocks Could Do Well in a Falling Rate Environment

Bank stocks have been getting hammered ever since the Federal Reserve on March 3 cut its benchmark interest rate a half point in response to the impact coronavirus has had on markets. The move dropped the federal funds rate inside a range of 1% to 1.25%, and the 10-year treasury note to an all-time low.

The reason so many banks are struggling is because the majority of them, especially with the increased reliance these days on commercial lending, are asset sensitive. That means that have a higher amount of outstanding loans tied to falling interest rates than deposits. So, when rates drop, more loans are losing yield than deposits, narrowing the net interest margin, the difference between what banks pay for their capital and what they earn on loans. 

Now, during a time like this, it might be easy to abandon the banking sector altogether. However, the good news is that not all banks are asset sensitive. Some actually do better at least in the short term in a falling rate environment.

Continue reading

Source Fool.com