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Bank margins and profits in a world of negative rates

Philip Molyneux (), Alessio Reghezza and Ru Xie

Journal of Banking & Finance, 2019, vol. 107, issue C, -

Abstract: By investigating the influence of negative interest rate policy (NIRP) on bank margins and profitability, this paper identifies country- and bank- specific characteristics that amplify or weaken the effect of NIRP on bank performance. Using a dataset comprising 7,359 banks from 33 OECD member countries over 2012–16 and a difference-in-differences methodology, we find that bank margins and profits fell in NIRP-adopter countries compared to countries that did not adopt the policy. Moreover, this adverse NIRP effect depends on bank specific-characteristics such as size, funding structure, business models, assets repricing and product – line specialization. The effectiveness of the pass-through mechanism of NIRP can also be affected by the characteristics of a country's banking system, namely, the level of competition and the prevalence of fixed/floating lending rates.

Keywords: Negative interest rates; Bank profitability; NIMs; Difference-in-differences estimation; Propensity score matching (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 G21 F34 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:107:y:2019:i:c:2

DOI: 10.1016/j.jbankfin.2019.105613

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