Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Determinants of Bank Interest Margins: Estimates of a Dynamic Model

Contents:

Author Info

  • Massimo Giulidori
  • Enzo Dia

    ()

Registered author(s):

Abstract

We develop a monopolistic version of a dynamic model of banking, where financial intermediation and payment services play a relevant role. We then empirically test the model using balance-sheet data for large European and US banks, and find strong support for the main predictions of the model. Interest revenues and costs are in fact very persistent, and they are strongly influenced by revenues from fees, and industrial and default costs. Interest margins rise with both short and long-term interest rates; however, when splitting the sample, we find that the results for the impact of interest rates are driven by the European banks. Finally, we find evidence that interest margins are anti-cyclical.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper157.pdf
File Function: First version, 2009
Download Restriction: no

Bibliographic Info

Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 157.

as in new window
Length: 28 pages
Date of creation: Mar 2009
Date of revision: Mar 2009
Handle: RePEc:mib:wpaper:157

Contact details of provider:
Postal: Piazza Ateneo Nuovo, 1 Milano 20126
Phone: +39 02 6448 3089
Fax: +39 02 6448 3085
Email:
Web page: http://dipeco.economia.unimib.it
More information through EDIRC

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Bordes, Christian & Goyeau, Daniel & Melitz, Jacques & Sauviat, Alain, 1991. "The profitability of anticipated inflation in banking," Economics Letters, Elsevier, vol. 37(1), pages 57-60, September.
  2. Neumark, David & Sharpe, Steven A, 1992. "Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 657-80, May.
  3. Allen N. Berger & Timothy H. Hannan, 1988. "The price-concentration relationship in banking," Finance and Economics Discussion Series 23, Board of Governors of the Federal Reserve System (U.S.).
  4. Gertler, Mark & Gilchrist, Simon, 1993. " The Role of Credit Market Imperfections in the Monetary Transmission Mechanism: Arguments and Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(1), pages 43-64.
  5. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
  6. Cosimano, Thomas F, 1987. "The Federal Funds Market under Bank Deregulation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(3), pages 326-39, August.
  7. Chami, Ralph & Cosimano, Thomas F., 2010. "Monetary policy with a touch of Basel," Journal of Economics and Business, Elsevier, vol. 62(3), pages 161-175, May.
  8. Cosimano, Thomas F. & McDonald, Bill, 1998. "What's different among banks?," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 57-70, February.
  9. Christina D. Romer & David H. Romer, 1990. "New Evidence on the Monetary Transmission Mechanism," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 149-214.
  10. Cosimano, Thomas F., 1988. "The banking industry under uncertain monetary policy," Journal of Banking & Finance, Elsevier, vol. 12(1), pages 117-139, March.
  11. Flannery, Mark J & James, Christopher M, 1984. " The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions," Journal of Finance, American Finance Association, vol. 39(4), pages 1141-53, September.
  12. Flannery, Mark J, 1981. "Market Interest Rates and Commercial Bank Profitability: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 36(5), pages 1085-1101, December.
  13. Flannery, Mark J, 1982. "Retail Bank Deposits as Quasi-Fixed Factors of Production," American Economic Review, American Economic Association, vol. 72(3), pages 527-36, June.
  14. Hess, Alan C, 1995. "Portfolio Theory, Transaction Costs, and the Demand for Time Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1015-32, November.
  15. Carbo Valverde, Santiago & Rodriguez Fernandez, Francisco, 2007. "The determinants of bank margins in European banking," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2043-2063, July.
  16. Osborne, Dale K, 1982. "The Cost of Servicing Demand Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(4), pages 479-93, November.
  17. Ho, Thomas S. Y. & Saunders, Anthony, 1981. "The Determinants of Bank Interest Margins: Theory and Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 581-600, November.
  18. Elyasiani, Elyas & Kopecky, Kenneth J & VanHoose, David, 1995. "Costs of Adjustment, Portfolio Separation, and the Dynamic Behavior of Bank Loans and Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 955-74, November.
  19. Maudos, Joaquin & Fernandez de Guevara, Juan, 2003. "Factors Explaining the Interest Margin in the Banking Sectors of the European Union," MPRA Paper 15252, University Library of Munich, Germany.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:mib:wpaper:157. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roberto Reale).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.