A steep yield curve should mean fat profits for banks. It hasn’t.
Unable to find qualified borrowers and worried that interest rates have nowhere to go but up, banks are stockpiling cash and securities while letting loans dwindle. It turns out banks won’t lend till rates rise. The trouble is, if rates rise their capital will take another hit, leaving them little to support new lending.
The yield curve is a proxy for the difference between short-term rates at which banks borrow and long-term rates at which they lend. In theory, a “steeper” curve means a wider profit margin.