 The quest for growth: The impact of bank strategy on interest marginsIvo Arnold () and Saskia de Vries-van Ewijk International Review of Financial Analysis, 2012, vol. 25, issue C, 18-27 Abstract: This paper proposes an alternative explanation for the decline in bank interest margins in many developed countries, which, in our view, better fits the empirical and narrative evidence on bank behavior in the run-up to the credit crisis. A common thread in the literature on bank interest margins is a causality that runs from competition to lower margins to new activities. The causal chain that we propose runs from ROE maximization to asset growth to lower interest margins. The key difference with the traditional explanation is that banks' quest for growth, not the level of competition in traditional retail segments, has transformed banks' balance sheets and reduced interest margins. Underlying this transformation is the strategic shift from relationship to transaction banking. In support of our explanation, this paper presents empirical evidence for banks in the euro area. Our results document a significant, positive impact of relationship banking on interest margins. Keywords: Bank interest margins; Risk-taking; Relationship and transaction banking (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:25:y:2012:i:c:p:18-27 DOI: 10.1016/j.irfa.2012.06.005 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.