 European bank margins at the zero lower boundThomas Present, Mathieu Simoens and Rudi Vander Vennet Journal of International Money and Finance, 2023, vol. 131, issue C Abstract: Post-2014, the zero lower bound on household deposits has intensified the downward pressure of the ECB’s accommodative monetary policy on banks’ net interest margins. Using a shadow rate to capture the stance of (unconventional) monetary policy, we construct counterfactual deposit rates, representing the path that deposit rates in 10 euro area countries would have followed in absence of the zero lower bound. Based on this counterfactual, we investigate whether banks attempt to compensate foregone deposit margins by increasing their lending margins. Our results show a substantial degree of margin compensation (around 44%). Moreover, banks which are highly dependent on net interest income increase their lending margins more, while higher shares of fee and commission income soften the compensation effect. Our estimations reveal important heterogeneity across euro area countries, with the end-2019 impact on lending margins ranging from negligible to more than 100 bps. These findings have implications for bank profitability, but also for the transmission of monetary policy to bank lending. Keywords: Euro area banks; Zero lower bound; Lending rate; Deposit rate; Compensation (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:jimfin:v:131:y:2023:i:c:s0261560623000049 DOI: 10.1016/j.jimonfin.2023.102803 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance 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.