Determinants of net interest margin: the effect of capital requirements and deposit insurance scheme

Paula Cruz-García and Juan Fernández de Guevara
Authors registered in the RePEc Author Service: Juan Fernández-de-Guevara ()

The European Journal of Finance, 2020, vol. 26, issue 11, 1102-1123

Abstract: This paper analyzes the determinants of net interest margin with a focus on the impact of capital regulation and deposit insurance. We extend the Ho and Saunders (1981) family of models to explicitly include both capital requirement and the deposit insurance premium as determinants of net interest margin. The model predicts that the higher the capital requirements and deposit insurance premium, the higher banks’ interest rates will be. We test the theoretical model using panel data for OECD countries between 2000 and 2014. Our results support the positive relationship between both the capital requirement and the deposit insurance premium on interest margins. The most important determinants of the net interest margin are implicit payments, efficiency, average operating costs, the intensity of competition, the deposit insurance premium and capital stringency.

Date: 2020
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Citations: View citations in EconPapers (6)

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DOI: 10.1080/1351847X.2019.1700149

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