rrufff....banks may be hedged but the yield curve represents something like their gross margins. If you borrow short and lend long, the difference between the two is your max leverage. As that difference shrinks, your total gross margin shrinks. That's an oversimplification but that's their general problem.
Total dependence on the yield curve and net interest margin results in bank operating results swinging up and down with the economy and interest rates. That is one reason for the big push by commercial banks to generate large fee incomes. That tends to offset the swings in net interest margin. Fees are more predictable and can allow a bank to continue to steadily increase revs and eps even as the yield curve is changing.
That's why your local branch of MegaBank tends to fee you to death. They need that fee income to grow the bottom line.
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