The Yield Curve Matters to Banks

"It's very difficult to make money or make a lot of money."
Provident Bankshares chairman and chief executive Gary N. Geisel

From the WaPo: Interest On Deposits Pressures Area Banks

Higher interest rates for bank depositors are stressing local and regional banks.

Caught in a squeeze, the banks generally are reporting declining profits. Some are considering cutting staff or closing branches. Others have been propping up earnings per share by buying back their own stock.
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To compete, some banks "have been loosening up their credit standards and offering lower rates to borrowers," even lower than the prime rates they traditionally charged their best business customers, said Avi Barak, who analyzes banks in the Mid-Atlantic region for the investment firm Sandler O'Neill & Partners.

Meanwhile, there are signs that the ability of borrowers to repay existing loans has been weakening, Barak said.

In a survey of 17 regional banks by Sandler O'Neill, nonperforming assets -- foreclosed property and loans on which borrowers have failed to make payments -- increased 23.2 percent in 2006.