The relations between bank-funding costs, retail rates, and loan volumes. Evidence form Norwegian microdata
AbstractIn this paper, we examine two questions: i) how changes in the funding costs of banks affect retail loan rates and ii) how changes in relative loan rates between banks affect their market shares. To do so, we estimate a simultaneous system of equations model using panel data for six Norwegian bank groups. The data set consists of quarterly data for the period 2002Q1-2011Q3 and includes information on loan volumes and retail (interest) rates for loans to firms and households. The cost of market funding is represented in our analysis by the three-month money market rate and a proxy for market risk; the credit spread on unsecured senior bonds issued by Norwegian banks. Our estimates suggest that a 10 basis points increase in the market rate leads to an approximately 8 basis points increase in retail loan rates. We also find that credit demand from households is more elastic with regard to the loan rate than credit demand from businesses.
Download InfoIf 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.
Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 742.
Date of creation: May 2013
Date of revision:
Credit demand; Pass-through; Funding costs; Monopolistic competition; Panel data; Dynamic factor model;
Find related papers by JEL classification:
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-25 (All new papers)
- NEP-BAN-2013-10-25 (Banking)
- NEP-COM-2013-10-25 (Industrial Competition)
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.:
- Adam B. Ashcraft, 2001.
"New evidence on the lending channel,"
136, Federal Reserve Bank of New York.
- Anil K. Kashyap & Jeremy C. Stein, 1994.
"Monetary Policy and Bank Lending,"
in: Monetary Policy, pages 221-261
National Bureau of Economic Research, Inc.
- Banerjee, A. & Bystrov, V. & Mizen, P., 2012.
"How do anticipated changes to short-term market rates influence banks' retail interest rates? Evidence from the four major euro area economies,"
361, Banque de France.
- Anindya Banerjee & Victor Bystrov & Paul Mizen, 2013. "How Do Anticipated Changes to Short‐Term Market Rates Influence Banks' Retail Interest Rates? Evidence from the Four Major Euro Area Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(7), pages 1375-1414, October.
- de Bondt, Gabe, 2002. "Retail bank interest rate pass-through: new evidence at the euro area level," Working Paper Series 0136, European Central Bank.
- Arvid Raknerud & Terje Skjerpen & Anders Rygh Swensen, 2010.
"Forecasting key macroeconomic variables from a large number of predictors: a state space approach,"
Journal of Forecasting,
John Wiley & Sons, Ltd., vol. 29(4), pages 367-387.
- Arvid Raknerud & Terje Skjerpen & Anders Rygh Swensen, 2007. "Forecasting key macroeconomic variables from a large number of predictors: A state space approach," Discussion Papers 504, Research Department of Statistics Norway.
- Allen, Linda, 1988. "The Determinants of Bank Interest Margins: A Note," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(02), pages 231-235, June.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Saunders, Anthony & Schumacher, Liliana, 2000. "The determinants of bank interest rate margins: an international study," Journal of International Money and Finance, Elsevier, vol. 19(6), pages 813-832, December.
- Harvey, Andrew C & Koopman, Siem Jan, 1992. "Diagnostic Checking of Unobserved-Components Time Series Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 377-89, October.
- Stock J.H. & Watson M.W., 2002. "Forecasting Using Principal Components From a Large Number of Predictors," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 1167-1179, December.
- Corvoisier, Sandrine & Gropp, Reint, 2001.
"Bank Concentration and Retail Interest Rates,"
Working Paper Series
0072, European Central Bank.
- De Graeve, Ferre & De Jonghe, Olivier & Vennet, Rudi Vander, 2007.
"Competition, transmission and bank pricing policies: Evidence from Belgian loan and deposit markets,"
Journal of Banking & Finance,
Elsevier, vol. 31(1), pages 259-278, January.
- F. De Graeve & O. De Jonghe & R. Vander Vennet, 2004. "Competition, transmission and bank pricing policies: Evidence from Belgian loan and deposit markets," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/261, Ghent University, Faculty of Economics and Business Administration.
- Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
- Donald W.K. Andrews, 1988.
"Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation,"
Cowles Foundation Discussion Papers
877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
- Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May.
- Rosen, Dan & Saunders, David, 2010. "Risk factor contributions in portfolio credit risk models," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 336-349, February.
- Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, December.
- Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-45, September.
- K. Anundsen, André & S. Jansen, Eilev, 2011.
"Self-reinforcing effects between housing prices and credit: Evidence from Norway,"
13/2011, Oslo University, Department of Economics.
- André K. Anundsen & Eilev S. Jansen, 2011. "Self-reinforcing effects between housing prices and credit. Evidence from Norway," Discussion Papers 651, Research Department of Statistics Norway.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (J Bruusgaard).
If references are entirely missing, you can add them using this form.