Izabella Kaminska, FT Alphaville, Death of Banks – series, here.
About time we familiarise ourselves with a new three-letter acronym: NIM. It’s bank parlance for “net interest margin”. And all you need to know about NIM is that once you strip out all the other stuff banks do after lending, it’s probably the best measure we have of how profitable a bank’s core business is.
The problem these days is that a negative carry universe doesn’t sit well with NIM. Not only are you having to pay people to borrow from you, unless you’re particularly well funded or in the banking elite, you’re probably having to borrow at more than zero. So, unless you’re a bank that has a habit of err, creating false markets or artificial scarcities — which we know has been severely constrained in the new post-crisis regulatory climate — NIM compression is a bit of a big deal.
And small surprise, bankers are beginning to worry, especially now that negative rates are a Eurozone-wide thing. (FWIW FT Alphaville’s “negative carry” tag takes that concern back as far as 2012.)