Academic journal article ABA Banking Journal

Margin Squeeze-Hint of Relief?

Academic journal article ABA Banking Journal

Margin Squeeze-Hint of Relief?

Article excerpt

As margins go, so go the fortunes of the bank, or so the conventional wisdom says. Through part of 2006 margins appeared stable, with only minor pullbacks seen, but the pressure of the yield curve has become harder to offset through non-interest income.

A look at the table shows that the average net interest margin has gone from a high of 3.78% in the first-quarter of 2006, to a low of 3.62% in the first-quarter of 2007 (based on 76% of the 617 major-exchanged-traded banks and thrifts reporting first-quarter results as of May 1, 2007). The median values trended the same way, but were generally a few basis points lower in each quarter.

The high end of the margin spectrum has been volatile, with tax-return-anticipation lenders leading the pack in the first quarters of both years. The low end has generally improved, however, going from the 1.2% range in early 2006 to the low 1.4% range in the first-quarter of 2007. This trend is encouraging, as it may be an indicator that the worst has passed and a long-awaited upward trend may be in the making.

The pullback in margins can largely be attributed to the state of the yield curve. As can be seen in the bottom half of the table, the long end of the curve has been tracking below the short end. …

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