Friday, July 09, 2010

Chart of the Day: Net Interest Margin

The net interest margin for all U.S. banks of 3.82% in the first quarter of 2009 is the highest since the fourth quarter of 2002. 

3 Comments:

At 7/09/2010 1:30 PM, Blogger Marko said...

Great looking chart - I wish that my investment portfolio looked like that right now!

 
At 7/09/2010 4:52 PM, Blogger David said...

FDIC Quarterly notes, "the sharp increase in net interest income caused by the adoption of the new accounting rules significantly boosted the industry's net interest margin"

Most of the NIM improvement occurred at a few large credit card lenders due to the implementation of FAS 166 and 167.

Lending activity also looked like it increased, but again it is due to credit card securitizations being added to bank balance sheets due to the accounting change.

 
At 7/09/2010 9:53 PM, Anonymous Red Duck said...

Median NIM would be a better statistic to present because it is less sensitive to outliers. It would removed David's concerns about accounting changes. FRED doesn't offer median data, but median NIM is slowly rising.

This is not good news. It means that the spread between the interest rates banks pay on deposits and the interest rate banks charge for loans is widening. This is a sign of industry-wide distress because competition would usually drive NIM down to their cost of funding plus a normal profit.

If all else were constant, rising NIM would result in higher bank profits, but if lending is falling at the same time (which it is), then a higher NIM doesn't necessarily result in higher earnings.

Run the graph for the entire length of the data series and take another look at it. Note that NIM generally falls during expansions and rises during and well after recessions.

Rising NIM is not a leading or coincident indicator of recovery. It is caused by the poor financial conditions resulting from recessions.

NIM peaked in 1994, well after the 1990-91 recession was over.

 

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