The dynamics of bank spreads and financial structure

Reint Gropp, Christoffer Kok and Jung-Duk Lichtenberger

No 714, Working Paper Series from European Central Bank

Abstract: This paper investigates the dynamics of the pass-through between market interest rates and bank interest rates in the euro area as a function of cyclical and structural differences in the financial system. We find that overall the speed of adjustment for loans is significantly faster than for deposits, and that the pass-through is especially sluggish for demand deposits and savings deposits. Bank soundness, credit risk and interest rate risk are found to exert a significant influence on the speed of pass through. We also find evidence of faster (slower) pass-through for loans (deposits) if the change in monetary policy was up (down). Overall, we find that competition among banks and competition from financial markets result in a faster bank interest rate pass-through. Finally, we find some evidence that financial innovation speeds up the pass-through for those market segments that are most directly affected by these innovations. JEL Classification: E43, G21

Keywords: banks; financial structure; monetary transmission; retail rates (search for similar items in EconPapers)
Date: 2007-01
Note: 56868
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (84)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2007714

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