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Banks’ Net Interest Margin and the Level of Interest Rates

Ramona Busch () and Christoph Memmel ()
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Ramona Busch: Deutsche Bundesbank, Wilhelm-Epstein-Straße 14, 60431 Frankfurt am Main, Germany

Credit and Capital Markets, 2017, vol. 50, issue 3, 363-392

Abstract: The prevailing view in the literature is that, in the long run, an increase in the level of interest rates will impact positively on banks’ net interest margins. Using a time series of more than 40 years for the German banking system, we confirm this effect (the net interest margin increases by 7 basis points for every 100 basis point increase in the interest rate level). What is more, we show that the opposite effect exists in the short run. In addition, we analyze the consequences of the low-interest-rate environment and find that banks’ interest margins on retail deposits, especially term deposits, have declined by up to 97 basis points.

JEL-codes: G21 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Banks' net interest margin and the level of interest rates (2015) Downloads
Working Paper: Banks Net Interest Margin and the Level of Interest Rates (2015) Downloads
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Handle: RePEc:kuk:journl:v:50:y:2017:i:3:p:363-392