From Forbes: The Federal Reserve’s monetary policy committee wraps up a two-day meeting Wednesday afternoon, and most market-watchers are anticipating some form of Operation Twist – a bid to lower short-term interest rates by redirecting the central bank’s balance sheet toward the longer end of the Treasury curve. Such a move – say, selling two-year notes to buy 10-years – would have a mixed impact on the financial sector.
To oversimplify things, banks traditionally make their money borrowing short and lending long, picking up the difference between their own funding costs and the rates they charge consumers and businesses for mortgages and commercial loans. Net interest margins (NIM) rise when the shorter end of the curve has lower interest rates than the long term, so a flattening of the curve is a negative for banks.
Read more at http://www.forbes.com/sites/steveschaefer/2011/09/21/what-bernankes-operation-twist-means-for-banks/
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