Impact of Interest Rate Hikes on U.S. Commercial Banks’ Profitability: Evidence from JPMorgan Chase, Bank of America, and Citigroup

Yutong Lu

Co-Presenters: Individual Presentation

College: College of Business and Public Management

Major: BS.FINANCE

Faculty Research Mentor: Yu, Huaibing  

Abstract:

In response to the post-pandemic inflation surge, the Federal Reserve embarked on an aggressive rate-hiking cycle from 2022 to 2024. This study examines the impact of this pivotal monetary policy shift on the profitability of leading U.S. commercial banks—JPMorgan Chase, Bank of America, and Citigroup.An empirical comparison of key financial metrics—including Net Interest Margin (NIM), Return on Assets (ROA), and Return on Equity (ROE)—between the low-rate period (2020–2021) and the high-rate period (2022–2024) reveals a nuanced picture. While rising interest rates generally boosted banks’ net interest income through wider interest spreads, their effects on overall profitability varied significantly across institutions. This variation reflects differences in bank-specific strategies, balance sheet compositions, and exposures to rising credit risk and deposit costs.Overall, the findings suggest that monetary policy acts as a double-edged sword for the banking sector. While higher interest rates can enhance interest income, they may also introduce financial pressures that limit profitability gains. This study provides valuable insights for investors assessing bank resilience and for policymakers evaluating the broader financial stability implications of interest rate decisions.