In the long term, the effect of the Federal Reserve keeping rates low will have a positive effect on bank profitability, though some may be feeling pain now, Fed chairman Ben Bernanke said Thursday.
“In the longer term, the overall effect on bank profitability of an appropriately accommodative monetary policy is almost certainly positive,” Bernanke told the Future of Community Banking Conference, according to prepared text of his comments, released by the Fed.
By keeping rates low to spur the economy, “loan demand and opportunities for profitable lending” will rise and provide other benefits, ultimately resulting in higher net interest margins, he said.
“In short, it is necessary to set the negative effects on net interest margins against the positive effects of a strengthening economic and lending environment,” Bernanke said. “Moreover, the benefits of a stronger economy for the performance of existing assets should also be taken into account; as you know, delinquencies decline as the economy improves.”