Monetary policy and bank profitability in a low interest rate environment

Carlo Altavilla, Miguel Boucinha (miguel.boucinha@ecb.int) and Jose-Luis Peydro

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We analyse the impact of standard and non-standard monetary policy on bank profitability. We use both proprietary and commercial data on individual euro area bank balance-sheets and market prices. Our results show that a monetary policy easing – a decrease in short-term interest rates and/or a flattening of the yield curve – is not associated with lower bank profits once we control for the endogeneity of the policy measures to expected macroeconomic and financial conditions. Accommodative monetary conditions asymmetrically affect the main components of bank profitability, with a positive impact on loan loss provisions and non-interest income offsetting the negative one on net interest income. A protracted period of low monetary rates has a negative effect on profits that, however, only materialises after a long time period and is counterbalanced by improved macroeconomic conditions. Monetary policy easing surprises during the low interest rate period improve bank stock prices and CDS.

Keywords: bank profitability; monetary policy; lower bound; quantitative easing; negative rates (search for similar items in EconPapers)
JEL-codes: E43 E52 G01 G21 G28 (search for similar items in EconPapers)
Date: 2017-10, Revised 2018-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (151)

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Related works:
Working Paper: Monetary Policy and Bank Profitability in a Low Interest Rate Environment (2019)
Journal Article: Monetary policy and bank profitability in a low interest rate environment (2018)
Journal Article: Monetary policy and bank profitability in a low interest rate environment (2018)
Working Paper: Monetary policy and bank profitability in a low interest rate environment (2017)
Working Paper: Monetary Policy and Bank Profitability in a Low Interest Rate Environment (2017)
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