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Macroprudential policy and net interest margin in European banks

Author

Listed:
  • Malgorzata OLSZAK

    (Wydzial Zarzadzania, Uniwersytet Warszawski)

  • Christophe J. GODLEWSKI

    (LaRGE Research Center, Université de Strasbourg)

  • Iwona KOWALSKA

    (Uniwersytet Warszawski)

  • Agnieszka WYSOCKA

    (Uniwersytet Warszawski)

Abstract

This paper investigates the effects of macroprudential policies on the net interest margins (NIM) in the 28 European countries over the period of 1996-2019 using the unique narrative database on macroprudential policy actions collected by the experts at the ECB and national central banks (MaPPED). Employing data covering over 22000 observations on over 3000 commercial and cooperative banks, we find a general negative effect of macroprudential policy on the NIM. A tightening of macroprudential policy results in an immediate decrease of net interest margin denoting a 1.3% change from the mean level of NIM, with even stronger effects observed in subsequent annual and bi-annual changes. We also find that the effect of macroprudential policy depends on the instrument types, with lending standards restrictions exerting the most significant immediate impact on NIM levels. Other instrument types have a delayed effect on NIM, with liquidity requirements and limits on currency mismatches resulting in the strongest declines in NIM. Furthermore, we identify that the impact of these policy instruments varies based on the credit risk and, in certain cases, the cost of credit risk for individual banks.

Suggested Citation

  • Malgorzata OLSZAK & Christophe J. GODLEWSKI & Iwona KOWALSKA & Agnieszka WYSOCKA, 2023. "Macroprudential policy and net interest margin in European banks," Working Papers of LaRGE Research Center 2023-05, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  • Handle: RePEc:lar:wpaper:2023-05
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    References listed on IDEAS

    as
    1. Chrysovalantis Gaganis & Emilios Galariotis & Fotios Pasiouras & Christos Staikouras, 2021. "Macroprudential regulations and bank profit efficiency: international evidence," Journal of Regulatory Economics, Springer, vol. 59(2), pages 136-160, April.
    2. Drakos, Kostas, 2003. "Assessing the success of reform in transition banking 10 years later: an interest margins analysis," Journal of Policy Modeling, Elsevier, vol. 25(3), pages 309-317, April.
    3. Zohair Alam & Mr. Adrian Alter & Jesse Eiseman & Mr. Gaston Gelos & Mr. Heedon Kang & Mr. Machiko Narita & Erlend Nier & Naixi Wang, 2019. "Digging Deeper--Evidence on the Effects of Macroprudential Policies from a New Database," IMF Working Papers 2019/066, International Monetary Fund.
    4. Carreras, Oriol & Davis, E. Philip & Piggott, Rebecca, 2018. "Assessing macroprudential tools in OECD countries within a cointegration framework," Journal of Financial Stability, Elsevier, vol. 37(C), pages 112-130.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    net interest margin; macroprudential policy instruments; credit risk;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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