Bank Margins and Profits in a World of Negative Rates

Phil Molyneux, Alessio Reghezza, Ru Xie

Research output: Contribution to journalArticle

Abstract

By investigating the influence of negative interest rate policy (NIRP) on bank margins and profitability, this paper identifies country- and bank- specific characteristics that amplify or weaken the effect of NIRP on bank performance. Using a dataset comprising 7,359 banks from 33 OECD member countries over 2012–16 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. Moreover, this adverse NIRP effect depends on bank specific-characteristics such as size, funding structure, business models, assets repricing and product – line specialization. The effectiveness of the pass-through mechanism of NIRP can also be affected by the characteristics of a country's banking system, namely, the level of competition and the prevalence of fixed/floating lending rates.

Original languageEnglish
Article number105613
Number of pages56
JournalJournal of Banking and Finance
Volume107
Early online date22 Aug 2019
DOIs
Publication statusPublished - 1 Oct 2019

Keywords

  • Bank profitability
  • Difference-in-differences estimation
  • NIMs
  • Negative interest rates
  • Propensity score matching

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Bank Margins and Profits in a World of Negative Rates. / Molyneux, Phil; Reghezza, Alessio; Xie, Ru.

In: Journal of Banking and Finance, Vol. 107, 105613, 01.10.2019.

Research output: Contribution to journalArticle

Molyneux, Phil ; Reghezza, Alessio ; Xie, Ru. / Bank Margins and Profits in a World of Negative Rates. In: Journal of Banking and Finance. 2019 ; Vol. 107.
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