Cover Staff Discussion Notes
Inflation and Bank Profits: Monetary Policy Trade-offs
Author:
Katharina Bergant https://isni.org/isni/0000000404811396 International Monetary Fund

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,
Mai Hakamada
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,
Divya Kirti
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https://orcid.org/0000-0001-6636-6687
, and
Rui Mano
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Series:
Staff Discussion Notes
Volume/Issue:
Volume 2025: Issue 001
Language:
English
Publication Date:
13 Feb 2025
DOI:
https://doi.org/10.5089/9798400294723.006
ISBN:
9798400294723
ISSN:
2617-6750
Pages:
38
Keywords:
Inflation; Bank profitability; Monetary policy; Financial stability
Legal-disclaimer:
Staff Discussion Notes (SDNs) showcase policy-related analysis and research being developed by IMF staff members and are published to elicit comments and to encourage debate.The views expressed in this Policy Discussion Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.
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Given the recent surge in inflation and the resulting sharp monetary tightening, this note asks whether bank profits are exposed to inflation. While most banks tend to match income and expense exposures, 5 and 8 percent of banks in Advanced Economies (AE) and Emerging Market and Developing Economies (EMDE), respectively, are vulnerable to changes in inflation and interest rates due to differences in risk management practices and business structures, with 3 and 6 percent of AE and EMDE banks, respectively, at least as exposed as Silicon Valley Bank at the onset of its failure. If losses at individual banks leave room for wider panics—despite needed improvements in bank regulation and supervision and other ex ante measures—central banks may need to weigh raising rates to contain inflation against the potential for financial instability.
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Cover Staff Discussion Notes
Staff Discussion Notes
ISSN:
2617-6750
Publisher:
International Monetary Fund