Most banks would continue to prosper even if the Federal Open Market Committee raises rates further during the coming few months, according to a recent study.
Olson Research Associates found that even a 200-basis-point rate increase would cause profits to fall by just 5.8% at very small banks, 5.3% at small banks, and 4.2% at midsize banks.
"This suggests that the net earnings are not very volatile when subjected to interest rate shocks," said Ronald L. Olson, founder of the company. "Banks are doing a good job managing their interest rate risks."
The Fed raised short-term rates 25 basis points Tuesday, and some economists predict more increases are on the way.
The study suggests an improvement from a year ago, when a rate shock would have caused profits to fall 8% at very small banks, 6.4% at small banks, and 4.4% at midsize banks, Mr. Olson said.
The Columbia, Md., company also found that banks become less liquid as they grow. Very small banks had an average loan-to-deposit ratio of 65.1%, compared to 70.6% and 75.4% at small and midsize banks, respectively.
These ratios are all down slightly from a year earlier. The smallest banks also had the highest risk-based capital ratio, 19.7%. Small and midsize banks had ratios of 17.8% and 15.3%.
The company reviewed 603 fourth-quarter call reports. Midsize banks had assets of $300 million or more, small banks had assets of $100 million to $300 million, and very small banks had less than $100 million of assets.
