TY - JOUR

T1 - Bank Margins and Profits in a World of Negative Rates

AU - Molyneux, Philip

AU - Reghezza, Alessio

AU - Xie, Ru

PY - 2019/10

Y1 - 2019/10

N2 - By investigating the influence of negative interest rate policy (NIRP) on bank margins and profitability, this paper identifies country- and bank- specific characteristics that amplify or weaken the effect of NIRP on bank performance. Using a dataset comprising 7,359 banks from 33 OECD member countries over 2012-2016 and a difference-in-differences methodology, we find that bank margins and profits fell in NIRP-adopter countries compared to countries that did not adopt the policy. Moreover, this adverse NIRP effect depends on bank specific-characteristics such as size, funding structure, business models, assets repricing and product – line specialization. The effectiveness of the pass-through mechanism of NIRP can also be affected by the characteristics of a country's banking system, namely, the level of competition and the prevalence of fixed/floating lending rates.

AB - By investigating the influence of negative interest rate policy (NIRP) on bank margins and profitability, this paper identifies country- and bank- specific characteristics that amplify or weaken the effect of NIRP on bank performance. Using a dataset comprising 7,359 banks from 33 OECD member countries over 2012-2016 and a difference-in-differences methodology, we find that bank margins and profits fell in NIRP-adopter countries compared to countries that did not adopt the policy. Moreover, this adverse NIRP effect depends on bank specific-characteristics such as size, funding structure, business models, assets repricing and product – line specialization. The effectiveness of the pass-through mechanism of NIRP can also be affected by the characteristics of a country's banking system, namely, the level of competition and the prevalence of fixed/floating lending rates.

KW - Negative interest rates

KW - bank profitability

KW - NIMs

KW - difference-in-differences

KW - Propensity score matching

U2 - 10.1016/j.jbankfin.2019.105613

DO - 10.1016/j.jbankfin.2019.105613

M3 - Article

VL - 107

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

SN - 0378-4266

M1 - 105613

ER -