How quickly banks adjust, IEA/IBL mostly depends on their Asset/Liability Management, which I won’t address for the sake of simplicity. ![]() The change in interest rates will determine how quickly banks adjust their IEA (primarily loans) and their IBL (mostly deposits). ![]() ![]() NII is a bank’s primary source of revenue and what determines its profitability beyond other sources of income and expenses.Why is this important? It’s essential to understand the fluctuations in interest rates determine a bank’s financial position. These liabilities include NOW (negotiable order of withdrawal) accounts, saving accounts, money market accounts, etc.The difference between a bank’s IEA and their IBL is what’s known as the net interest margin (NII). At the same time, banks pay interest on their interest-bearing liabilities (IBL). First, it’s important to understand how depository institutions make money.Banks earn a return on their interest-earning assets (IEA), which can be anything from commercial/industrial loans, real estate loans, personal loans, trading securities, credit cards, etc.
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