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"Low-For-Long" Interest Rates and Banks' Interest Margins and Profitability : Cross-Country Evidence

Author

Listed:
  • Stijn Claessens

    (Afdeling Business Studies
    Tinbergen Instituut
    Centre for Economic Policy Research (CEPR)
    ebrary Inc)

  • Nicholas Coleman
  • Michael S. Donnelly

Abstract

Interest rates in many advanced economies have been low for almost a decade now and are often expected to remain so. This creates challenges for banks. Using a sample of 3,385 banks from 47 countries from 2005 to 2013, we find that a one percentage point interest rate drop implies an 8 basis points lower net interest margin, with this effect greater (20 basis points) at low rates. Low rates also adversely affect bank profitability, but with more variation. And for each additional year of "low for long", margins and profitability fall by another 9 and 6 basis points, respectively.

Suggested Citation

  • Stijn Claessens & Nicholas Coleman & Michael S. Donnelly, 2017. ""Low-For-Long" Interest Rates and Banks' Interest Margins and Profitability : Cross-Country Evidence," International Finance Discussion Papers 1197, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:1197
    DOI: 10.17016/IFDP.2017.1197
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Interest rates; Bank profitability; Net interest margin; Low-for-long;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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