NEW YORK (TheStreet) -- Ever since the financial crisis, banking news has focused mainly on regulatory issues, but that may not be the most important issue for investors.
How banks' financial performance responds to changes in interest rates will affect the stock price just as much, if not more.
For example, Deutsche Bank analyst Matthew O'Connor recently wrote that a 1% rise in both short- and long-term interest rates would increase Bank of America's 2015 earnings by 20%, or about $3 billion.
The impact is likely even greater for big regional banks such as Comerica (CMA) or Zions Bancorp (ZION), according to Paul Miller, analyst at FBR Capital Markets. When 10-year Treasury yields climbed from 1.90% April 20 to 2.28% May 11, shares of all three banks posted gains that outpaced the broader market.
Zions shares rose 4.86%, Comerica shares jumped 5.37% and Bank of America shares -- possibly because the stock is more widely followed than the other two -- climbed by nearly 6%. The S&P 500, meanwhile, rose by just 1.15% in the same time frame.
The numbers might easily be missed by a regular reader of business news. Banks use all kinds of geeky terminology to talk about how interest rates affect their performance, and the phrase net interest margin -- which gauges the profitability of a bank's lending -- is not one you're ever going to see in the headline of a general interest news story.
That may be partly why The New York Times on Tuesday left interest-rate analysis for another day and chose instead to focus on a study of Wall Street ethics. Data for the study by law firm Labaton Sucharow and the University of Notre Dame came from interviews with highly paid financial-sector employees, many of whom believe bad behavior hasn't gone away since the financial crisis. The study suggests pay incentives still reward Wall Street managers for illegal or unethical behavior.
A separate article in The New York Times on Tuesday looks at rising compensation levels and declining office vacancies to make the case that the financial sector's growth is once again dominating the U.S. economy just seven years after the financial crisis.
That doesn't necessarily mean regulators and legislators are going to be tougher on Wall Street. FBR's Miller expects to see legislators rein in the power of the Consumer Financial Protection Bureau -- a regulator born out of the crisis.
He also believes looser rules are on the way for big regional banks like Zions and Comerica regarding the tests they must pass to prove their soundness to regulators.
While the regulatory environment is important -- banks have paid out tens of billions in fines since the crisis, and now face tighter restrictions on how much risk they can take -- you're likely to keep hearing far more about that than about interest rates. Even though the latter's influence on finance stocks may be longer lasting.
"Both issues are important," says FBR's Miller, referring to the relative impact of interest rates versus regulations.
Both are important, but one gets a lot more attention. Interest rates aren't as sexy a topic as banker pay, but they should matter at least as much to investors.