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Rising interest rates can help both banks and brokerages—but only when the yields they earn rise faster than the cost of their funding, and when other parts of the business hold up. Banks are exposed through loans, securities, and deposits; brokerages through customer cash, margin loans, and securities lending. In either sector, timing, customer behavior, and noninterest revenue can reverse the apparent tailwind. An earnings benefit also does not guarantee that a stock will outperform.
Why rising rates do not affect every financial company the same way
The key mechanism is the spread between what a firm earns on interest-bearing assets and what it pays for funding. The size and timing of rate changes matter: assets and funding can reset at different speeds, and balances can grow or shrink. Banks and brokerages also earn revenue outside that interest spread, so the same rate move can produce different results across companies.
How higher rates affect banks
Banks earn interest on loans and securities and pay interest on deposits and wholesale borrowings. Their net interest income depends on asset yields, funding costs, balance growth, and when each reprices. Floating-rate loans may reset quickly; fixed-rate assets may not. Meanwhile, depositors may move money to higher-yield accounts, raising a bank’s funding costs.
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When banks may benefit
- Floating-rate loans or newly originated and reinvested assets reprice upward before deposit costs rise as much.
- Loan and deposit balances grow without a damaging change in funding mix or credit quality.
- Funding costs fall or rise more slowly than asset yields, supporting net interest income and margin.
When banks may come under pressure
- Deposit competition pushes up the rates paid to customers faster than asset yields reset.
- Fixed-rate loans and securities keep earning older, lower yields while funding costs rise.
- Weaker loan demand or deteriorating credit quality offsets the benefit of higher interest income.
Interest income is not the only rate-related concern. 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. The report noted that banks had shortened asset duration, but the losses remained sizable. This is a sector-wide figure, not a measure of any individual bank’s position.
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Company results illustrate why the direction of rates alone is not enough to predict performance. PNC reported that 2025 net interest income rose 7% and net interest margin increased 17 basis points compared with 2024. It attributed the gains to lower funding costs, continued benefits from fixed-rate asset repricing, and loan growth. Those are PNC’s reported results, not a forecast for banks generally. PNC 2025 Annual Report
How higher rates affect brokerages
Brokerages can earn interest from customer credit balances, margin loans, segregated cash and securities, and securities lending. Higher market rates may lift yields on some of these balances. The result depends on the amount and mix of customer balances, margin borrowing, funding costs, securities-lending activity, and how much interest the firm passes through to customers. Interactive Brokers’ 2025 Form 10-K identifies these balance categories as drivers of its net interest income.
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Interest is only one part of brokerage revenue
Commissions, asset-management fees, trading activity, and other services also contribute to brokerage revenue. These lines can diversify a firm’s income, but they bring their own exposure to market activity and customer demand. PNC’s annual report, for example, lists brokerage fees and asset-management fees separately from net interest income. PNC 2025 Annual Report
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 components of customer balances declined as rates fell worldwide. This is one firm’s fiscal-year result, not a universal response for brokerages. Interactive Brokers’ 2025 Form 10-K
What to compare when evaluating a specific company
Sector labels are a starting point, not a substitute for examining a company’s balance sheet, revenue mix, and disclosures. These questions help distinguish a genuine rate tailwind from a headline impression:
- Rate sensitivity: What change in net interest income or margin does management disclose under different rate scenarios? Check whether the scenarios involve a parallel rate shift or a change in the yield curve.
- Repricing speed: When do loans, securities, deposits, customer cash, and borrowings reset? Fixed-rate assets can respond more slowly than floating-rate balances.
- Funding behavior: For a bank, how are deposits priced and composed, and how much does it rely on wholesale funding? For a brokerage, how do customer cash flows and funding costs change?
- Balance growth and mix: Track banks’ loans and deposits. For brokerages, examine customer credit balances, margin loans, and segregated balances.
- Other revenue: Consider brokerage, asset-management, trading, capital-markets, and service fees alongside interest income. These sources have their own risks.
- Financial risks and valuation: Assess credit exposure, securities marks, capital, liquidity, and the stock’s valuation separately from near-term interest earnings. The Federal Reserve discusses bank securities valuation and broker-dealer leverage as distinct financial-stability considerations. Federal Reserve, May 2026 Financial Stability Report
Separate earnings effects from stock performance
A company can report stronger net interest income without its shares necessarily rising. Investors may already expect the improvement, or may focus on valuation, credit quality, capital, liquidity, market activity, or risks elsewhere in the business. Regulatory and company filings describe operating drivers; they do not establish a guaranteed share-price response for either sector.
For example, Bank of America reported quarterly net interest income of $16.0 billion for Q2 2026. It said year-over-year growth was driven by Global Markets activity, deposit and loan growth, and fixed-rate asset repricing, partly offset by lower rates. That result reflects one company and quarter, with several contributing factors—not a simple measure of how bank stocks respond when rates rise. Bank of America Q2 2026 Form 10-Q
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