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Bank Profits and Margins in a World of Negative Rates

Author

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  • Philip Molyneux

    (Bangor University)

  • Alessio Reghezza

    (Bangor University)

  • Ru Xie

    (University of Bath)

Abstract

This paper investigates the influence of negative interest rate policy (NIRP) on bank margins and profitability. Using a dataset comprising 7242 banks from 33 OECD member countries over 2012-2016 and a difference-in-differences methodology, we find that bank margins and profits fell in NIRP-adopter countries compared to countries that did not adopt the policy. The results are robust to a variety of checks. This adverse NIRP effect appears to have been stronger for banks that were small, operating in competitive system as well as in countries where floating loan rates predominate.

Suggested Citation

  • Philip Molyneux & Alessio Reghezza & Ru Xie, 2018. "Bank Profits and Margins in a World of Negative Rates," Working Papers 18001, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  • Handle: RePEc:bng:wpaper:18001
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    File URL: https://www.bangor.ac.uk/business/research/documents/BBSWP-18-01.pdf
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    Cited by:

    1. Whelsy Boungou, 2019. "Negative interest rate, bank profitability and risk-taking," Documents de Travail de l'OFCE 2019-10, Observatoire Francais des Conjonctures Economiques (OFCE).
    2. Katharina Allinger & Julia Wörz, 2020. "The sensitivity of banks’ net interest margins to interest rate conditions in CESEE," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1/20, pages 51-70.

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    More about this item

    Keywords

    Negative interest rates; bank profitability; NIMs; difference-in-differences estimation;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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