How do increasing interest rates affect commercial banks in the United States?

Increasing interest rates generally have a complex impact on commercial banks. When interest rates rise, the cost of borrowing increases for consumers and businesses. This tends to lead to a decrease in loan demand, which can negatively affect banks because they rely on interest income from loans as a primary revenue source.

Additionally, higher interest rates may result in increased defaults on existing loans, as borrowers may struggle to meet higher payments. This can further strain a bank's profitability and financial health.

While it's true that banks can benefit from a higher interest spread—meaning they pay less interest on deposits while charging more on loans—the adverse effects of reduced demand for new loans and potential defaults can outweigh these benefits in a rising interest environment. Therefore, the perspective that banks are adversely affected by increasing rates captures the overall impact more accurately.