The expansion of services in European banking: implications for loan pricing and interest margins

Laetitia Lepetit, Emmanuelle Nys, Philippe Rous (philippe.rous@unilim.fr) and Amine Tarazi
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Philippe Rous: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

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Abstract: Our study of 602 European banks over 1996-2002 investigates how the banks' expansion into fee-based services has affected their interest margins and loan pricing. We find that higher income share from commissions and fees is associated with lower margins and loan spreads. The higher the commission and fee income share, moreover, the weaker the link between bank loan spreads and loan risk. The latter result is consistent with the conjecture that banks price (or misprice) loans to increase sales of other services. That loss leader (or cross selling) hypothesis has implications for bank regulation and competition with (non-bank) lenders. JEL classification: G21

Keywords: bank; interest income; non-interest income; interest margin; lending (search for similar items in EconPapers)
Date: 2008-11
Note: View the original document on HAL open archive server: https://hal.science/hal-01098958v1
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Citations: View citations in EconPapers (150)

Published in Journal of Banking and Finance, 2008, 32 (11), pp.2325-2335

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Journal Article: The expansion of services in European banking: Implications for loan pricing and interest margins (2008)
Working Paper: The expansion of services in European banking: Implications for loan pricing and interest margins (2008)
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