Keep the faith in banking: New evidence for the effects of negative interest rates based on the case of Finnish cooperative banks

Juha Junttila, Jukka Perttunen and Juhani Raatikainen

International Review of Financial Analysis, 2021, vol. 75, issue C

Abstract: This paper analyses the profitability of Finnish cooperative banks during the period of negative nominal interest rates. Contrary to expectations, the continuous decline in money market interest rates between 2009 and 2014, and the following negative rate era, did not have adverse effects on the profitability of banks at the beginning of negative interest rate period. Based on especially using a risk-adjusted measure for bank profitability, these results contrast with previous findings. In our findings, the increasing wholesale funding (WSF) ratio seems to be an important factor. However, after 2017 the banks have not been able to improve especially their risk-adjusted profitability so strongly anymore, because the WSF and the development of other than net interest margin returns have been in negative connection to it. In addition, the unconventional monetary policy actions seem not to improve profitability in the most recent observations of our data. These results raise serious concerns for the future of bank profitability during the prolonged period of negative interest rates.

Keywords: Banks; Profitability; Negative interest rates; Dynamic conditional correlations (search for similar items in EconPapers)
JEL-codes: C32 C58 G15 G21 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:75:y:2021:i:c:s1057521921000673

DOI: 10.1016/j.irfa.2021.101724

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