The Interest Rate Pass-Through in German Banking Groups
AbstractThe pass-through of market rates to retail interest rates is generally found to be particularly slow in Germany compared to other countries. One popular explanation is the organisation of the banking system in three strictly segregated "pillars": savings banks, credit cooperatives and private banks, and the low competitiveness of the first two of them. In this paper we analyse the differences of the interest rate pass-through between these banking groups. We employ a dataset covering (roughly) 30 banks' retail interest rates of four standard banking products (mortgages, consumer credit, savings accounts and time deposits). In a panel ECM we first estimate reference models of the interest pass-through for the four products. In a second step they are augmented by dummies representing the respective banking group. We find remarkable differences in the interest rate pass-thorugh: in general it is the big banks and savings banks reacting significantly quicker to changes in the market than regional banks and credit cooperatives. Hence, in contrast to the "common knowledge" of sluggish reactions of state banks, the savings banks take full part in competition. The credit cooperatives however, smoothing their retail rates, shield their customers from interest rate change risks.
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Bibliographic InfoArticle provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.
Volume (Year): 226 (2006)
Issue (Month): 4 (July)
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Interest rate pass-through; banking groups; panel ECM;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
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