Inverted Yield Curve Effect

This problem tests your understanding of how banks make money by borrowing short term and lending long term, and why the shape of the yield curve matters for that business model. In investment banking interviews, candidates are expected to explain the relationship between funding costs, lending yields, net interest margin, and the sensitivity of a bank’s balance sheet to interest rate movements. It also checks whether you can think about industry specific drivers of profitability and discuss why different banks may be affected differently based on their asset mix and duration exposure.