But in some respects, this viewpoint is overblown and not always completely accurate. Let us therefore delve deeper into the issue. Shrinking earnings from interest business are a fundamental problem for banks and savings banks. In prolonged periods of low interest rates, maturing loans with high rates of interest are replaced with new, lower-yielding loans.
To counteract a decline in interest income, banks tend to increase the average maturity of the loans they issue. But this only goes so far to remedy the malaise in the current environment because longer-term interest rates are very low, too. So to continue earning money from interest business, banks need to cut back on their interest expenditure.