Macroprudential policy and net interest margin in European banks

Malgorzata Olszak (), Christophe Godlewski, Iwona Kowalska and Agnieszka Wysocka
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Malgorzata Olszak: Wydzial Zarzadzania, Uniwersytet Warszawski
Iwona Kowalska: Uniwersytet Warszawski
Agnieszka Wysocka: Uniwersytet Warszawski

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

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.

Keywords: net interest margin; macroprudential policy instruments; credit risk (search for similar items in EconPapers)
JEL-codes: E44 E58 G21 G28 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-cba and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2023-05

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