Commercial banks make higher profits when interest rates rise

I operate on the basis of first seeking to understand the phenomena I am addressing through logic and recourse to the evidence base. I am very cautious in my public statements – oral or written – and always seek to consult the knowledge base. I noticed a comment in response to yesterday’s blog post – The RBA has lost the plot – monetary policy is now incomprehensible in Australia (July 6, 2022) – that insinuated that I was writing nonsense in relation to my claim that commercial banks enjoy higher interest rate environments because they can make more profit. Anyone is welcome to their opinion, but not all are of equal privilege when it comes to these issues. If you understand the basis of commercial banking and the vast amount of research on the proposition you will have no doubt in concluding that commercial banks do not like it when interest rates are low and will make more profit now that the RBA is hiking rates. To opine otherwise tells me that there is a lack of understanding about the basis of commercial banking and a disregard (perhaps ignorance) of the research literature on the topic.

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