The Effect of Term Spreads On Malaysian Commercial Bank Activity

Abstract

The effect of fluctuation of market interest rates on banking activities has been an important issue for many years. Samuelson (1945) provided earlier treatment on this issue. He hat bank profits increase as interest rates increase. The extent of the effect of fluctuation interest rates on bank profitability largely depends on the sensitivity of bank assets towards changes in these rates. Later study by Hancock (1985) confirms this Hancock (1985) finds that higher level of market interest rates improve banking . Earlier, Ho and Saunders (1981) indicate that bank interest rates spreads arc By the volatility in the open market rates.