Rising interest rates can help bank and brokerage earnings when the yield earned on assets and customer balances rises faster than the cost of funding them. They can also squeeze earnings when funding costs reset sooner, customers move cash, or fixed-rate securities lose value. Banks are more directly exposed through loans, securities and deposits; brokerages earn interest on customer cash, margin loans and securities lending, alongside fees and commissions. Neither sector has a uniform response, and an earnings benefit alone does not predict which stocks will outperform.
Why higher rates do not automatically mean higher profits
For both kinds of business, the effect depends on what earns interest, what costs interest, how quickly each reprices, and how balances change. A rate increase is not passed through evenly: loan rates, deposit rates, brokerage customer yields and borrowing costs can move by different amounts and on different schedules.
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That makes net interest income a spread-and-volume outcome. A firm may earn more per dollar but have fewer interest-earning balances, or grow balances while paying more to keep funding. Rising market yields can also reduce the fair value of existing fixed-rate securities, so current interest income and balance-sheet value can move in different directions.
How rising rates affect banks
Loans, securities and funding costs
Banks earn interest on loans and securities and pay interest on deposits and wholesale borrowing. Floating-rate loans may reset quickly, while fixed-rate loans and securities generally reprice more slowly. If asset yields rise before deposit and borrowing costs, net interest income and net interest margin may improve.
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The reverse can happen when depositors demand higher rates or move into higher-yield accounts, while asset yields adjust slowly. Loan floors, customer pricing, deposit competition, balance growth, hedging and the bank’s asset duration all shape the result. Weaker loan demand or deteriorating credit quality can also offset a higher yield environment.
Fixed-rate securities can lose value
When market yields rise, the fair value of existing fixed-rate securities generally falls. The Federal Reserve’s May 2026 Financial Stability Report said that at year-end 2025 the combined fair value of banks’ available-for-sale and held-to-maturity securities was $300 billion below book value. Banks had shortened asset duration, but the report described the losses as still sizable. This valuation channel is distinct from whether a bank’s current-period interest income is increasing.
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Company example: PNC
PNC reported that 2025 net interest income rose 7% and net interest margin increased 17 basis points compared with 2024. Its annual report attributed the changes to lower funding costs, continued benefits from repricing fixed-rate assets and loan growth. The example shows why the timing and mix of a bank’s assets and funding matter; it is not a forecast for other banks. PNC 2025 Annual Report
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How rising rates affect brokerages
Interest on customer-related balances
Brokerages may earn interest on customer credit balances and segregated cash and securities, lend to customers using margin accounts, or earn revenue from securities lending. Higher rates can raise the yields associated with these activities. The outcome still depends on the size and mix of balances, margin borrowing, securities-lending activity, funding costs, and how much interest the brokerage passes through to customers. Interactive Brokers identifies these factors as drivers of its net interest income. Interactive Brokers 2025 Form 10-K
Fees and trading activity also matter
A brokerage is not just an interest spread. Commissions, asset-management fees and other services contribute to revenue, with their own exposure to customer activity and market conditions. PNC’s annual report, for example, lists brokerage fees and asset-management fees separately from interest income. PNC 2025 Annual Report
Company example: Interactive Brokers
Interactive Brokers reported 2025 net interest income of $3.563 billion, up $415 million, or 13%, from the prior year. The company attributed the increase to higher average customer margin loans and credit balances and stronger securities-lending activity, partly offset by lower benchmark rates. It also reported that yields on customer-balance components declined as rates fell worldwide. These results describe one firm’s year, not a standard brokerage response to rate changes. Interactive Brokers 2025 Form 10-K
What to compare when evaluating individual companies
Sector labels are less useful than a company’s actual balance sheet, funding mix and revenue sources. Read rate-sensitivity disclosures alongside the following factors:
- Rate scenarios: Look for management’s disclosed net interest income or margin sensitivity. Check whether a scenario assumes a parallel rate move or a change in the yield curve’s shape.
- Repricing speed: Compare when loans, securities, deposits, customer cash and borrowings reset, and how much of each balance is fixed-rate.
- Funding behavior: For banks, examine deposit mix, pricing and wholesale funding. For brokerages, examine customer cash movements and funding costs, including how much of a market-rate change is passed through to customers.
- Balance growth and mix: For banks, track loan and deposit growth. For brokerages, track customer credit balances, margin loans and segregated balances.
- Noninterest revenue: Consider brokerage, asset-management, trading, capital-markets and service fees, while accounting for their exposure to market activity.
- Other financial risks: Assess credit quality, securities valuation, capital, liquidity and valuation separately from near-term interest income. The Federal Reserve discusses bank securities valuation and broker-dealer leverage as distinct financial-stability considerations in its May 2026 report.
Interest-rate earnings are not stock returns
Company filings and regulatory reports explain operating exposures; they do not establish a guaranteed share-price response for either sector. Stock performance also reflects valuation, what investors already expect, credit and funding risks, capital, market activity and noninterest businesses. A company can report stronger interest income without its stock outperforming if the benefit was already reflected in the price or other risks weigh more heavily.
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For a recent bank illustration, Bank of America reported quarterly net interest income of $16.0 billion for Q2 2026. Its filing attributed year-over-year growth to Global Markets activity, deposit and loan growth, and fixed-rate asset repricing, partly offset by lower rates. That result shows multiple drivers operating together; it is not a clean measure of the effect of rising rates alone. Bank of America Q2 2026 Form 10-Q
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