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March 1986, 
Vol. 68, No. 3
Posted 1986-03-01

The Effects of Inflation on Commercial Banks

by G.J. Santoni

G. J. Santoni examines this issue by analyzing the relationship between inflation and the stock prices of publicly traded banks. The author’s results indicate that the real share prices of banks fall when the actual rate of inflation is greater than the anticipated rate of inflation. Furthermore, upward revisions in the anticipated rate of inflation are associated with declines in the real share prices of commercial banks. Santoni’s evidence suggests that the recent decline in the rate of inflation has had a favorable impact on banks and that any unexpected resurgence of inflation would be harmful to bank stock.