A steeper yield curve appears to actually reduce banks’ net interest margins, contrary to received wisdom, a group of Bank of England economists write in a blog post published today (January 18).

Oliver Brenman, Frank Eich and Jumana Saleheen note that while it would seem that higher long-term yields relative to short-term yields would tend to support banks’ profits through maturity transformation, the data does not bear out this hypothesis. In fact, as the yield curve steepens, net interest