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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 De Haan

    (University of Groningen and 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 income and expense interest rate sensitivities closely match. But our results also suggest that the effect of market concentration on the link between interest ratesand interest margins is weaker when interest rates approach zero.

Suggested Citation

  • Nimrod Segev & Sigal Ribon & Michael Kahn & Jakob De Haan, 2021. "Low Interest Rates and Banks' Interest Margins: Does Deposit Market Concentration Matter?," Bank of Israel Working Papers 2021.16, Bank of Israel.
    • Handle: RePEc:boi:wpaper:2021.16
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    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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