The effect of the Fed zero-lower bound announcementon bank profitability and diversification

Andrea Landi, Alex Sclip, Valeria Venturelli

Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) from Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi"

Abstract: In this paper we investigate the impact of the Federal Reserve's decision to main- tain the zero-lower bound for at least two years on bank profitability and strategies. Using a difference in difference setting we find that banks with lower reliance on deposit funding are more sensitive to the policy event. Reduced net worth of low deposit banks, relative to high deposit banks, induces those banks to change their strategies toward an increase in fee income related products to maintain the tar- geted level of performance. Such an increase is mainly explained by fiduciary and insurance related revenues that entail a lower risk for financial stability.

Keywords: Profitability; diversification; zero-lower bound; unconventional monetary policy; banking (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 G21 (search for similar items in EconPapers)
Pages: pages 54
Date: 2019-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:mod:wcefin:0079

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