# What net interest margin is typical for a bank?

## Learn german | interrogative pronoun "welch-" | interrogative pronoun | A1 – lesson 53 (october 2022)

In the united states, the average net interest margin for banks in the first quarter of 2015 was 3.3%. However, this was the lowest average net interest margin in more than 10 years. .. The net interest margin for U.S. Banks in the first quarter of 2005 was 3.5%. A peak of 3.84% was achieved in the first quarter of 2010. On the surface, this suggests that a typical net interest margin for U.S. Banks in the 21. Century interest rates range from 3 to 4 percent.

In addition, it appears that net interest margins remain relatively constant for small to mid-sized banks, but tend to shrink sharply for the largest banks. In the first quarter of 2015, banks with total banking assets between $50 billion and $99 billion had net interest margins between 3.5% and 4.1%. Banks with assets of over 100 billion. USD had net interest margins between 2.5 and 2.8%.

## Explanation of net interest margin

In finance, net interest margin measures the difference between interest paid and interest received, adjusted for the amount of assets earning interest.

To illustrate this, take the simple case where a bank making loans of $100 million per year. $5 was generated from these loans. 5 million zreplacemoney. It also paid out $2. 5 million in interest to its depositors.

Calculate this bank's net interest margin using the following formula: net interest margin = (5, 5 million – 2.5 million) / $100 million = 0.33 or 3%.

Net interest margin is not the same as – and does not correlate perfectly with – net interest income. Net zreplacerag is the numerator in the net interest margin equation, but the denominator (total assets) can change in proportions not reflected in the numerator.

Net interest margin should not be confused with profitability. Most banks generate significant revenue from fees and service charges, none of which are affected by interest rate spreads.

## Typical and relative net interest spread

Several factors can change the typical net interest margin for banks. For example, the supply and demand of loanable funds helps determine market interest rates. Federal reserve monetary policy and banking regulations can change deposit demand and loan demand.

If demand for savings increases relative to demand for loans, it is likely that the net interest margin will decline. The opposite is true when loan demand is higher relative to savings.

At the individual company level, net interest margins can vary dramatically. In 2015, the net interest margin for the sixth largest financial institution, the bank of new york mellon corporation, was only 0.92%. The seventh largest, capital one financial, had a net interest margin of 6%.

This does not necessarily mean that capital one is more than six times as efficient as bank of new york mellon, as each company focuses on different financial instruments to generate income. However, it suggests that capital one has more flexibility in a changing environment.