Prospects for euro area bank lending margins in an extended low-for-longer interest rate environment

Ugo Albertazzi, Desislava Andreeva, Marco Belloni, Alberto Grassi, Christian Gross (), Jonas Mosthaf and Tamarah Shakir

Financial Stability Review, 2020, vol. 2

Abstract: We examine some aspects of how the low-for-even-longer interest rate environment may affect bank lending margins and overall financial stability. We find evidence that margins fall more in response to declines in nominal short-term rates when these are low to begin with. The compression of margins reflects the sluggish response to further policy rate cuts of deposit rates as these approach the zero lower bound. Moreover, the analysis indicates that bank margins and overall profitability are influenced by both the level of real rates and, more materially, the level of inflation expectations embedded in nominal rates, which reflects the fact that bank profits are partly akin to seigniorage. JEL Classification: G2, E43

Keywords: bank profitability; inflation expectations; lending margins; low interest rate environment (search for similar items in EconPapers)
Date: 2020-11
Note: 451871
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:fsrart:2020:0002:2

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