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Low Interest Rates and Banks’ Interest Margins: Does Deposit Market Concentration Matter?

Author

Listed:
  • Nimrod Segev

    (Bank of Israel)

  • Sigal Ribon

    (Bank of Israel)

  • Michael Kahn

    (Bank of Israel)

  • Jakob Haan

    (University of Groningen
    CESifo)

Abstract

Using a sample of 7,919 banks from 30 OECD countries over 1995–2019, we examine the impact of low interest rates on banks’ net interest margins. Our results confirm a positive relationship between interest rates and interest margins, which is stronger in a low interest rate environment. In more concentrated markets, however, interest margins are less sensitive to the level of interest rates, as interest rate sensitivities of income and expense margins match. But our results also suggest that the effect of market concentration on the link between interest rates and interest margins is weaker when interest rates approach zero.

Suggested Citation

  • Nimrod Segev & Sigal Ribon & Michael Kahn & Jakob Haan, 2024. "Low Interest Rates and Banks’ Interest Margins: Does Deposit Market Concentration Matter?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 65(2), pages 189-218, June.
    • Handle: RePEc:kap:jfsres:v:65:y:2024:i:2:d:10.1007_s10693-022-00393-0
    DOI: 10.1007/s10693-022-00393-0
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    More about this item

    Keywords

    Bank profitability; Net interest margin; Low interest rates; Market concentration;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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