The Expansion of Services in European Banking: Implications for Loan Pricing and Interest Margins

Posted: 27 Nov 2007 Last revised: 13 Mar 2014

See all articles by Amine Tarazi

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE)

Emmanuelle Nys

Université de Limoges, LAPE

Philippe Rous

Université de Limoges, LAPE

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.

Keywords: bank, interest income, non-interest income, interest margin, lending

JEL Classification: G21

Suggested Citation

Tarazi, Amine and Lepetit, Laetitia and Nys, Emmanuelle and Rous, Philippe, The Expansion of Services in European Banking: Implications for Loan Pricing and Interest Margins. Journal of Banking and Finance, 2008, 32 (11), 2325-2335. Available at SSRN: https://ssrn.com/abstract=1032664

Amine Tarazi (Contact Author)

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE) ( email )

5 rue Felix Eboue
BP 3127
Limoges Cedex 1, 87031
France
+33555149213 (Phone)

HOME PAGE: http://www.unilim.fr/lape/

Emmanuelle Nys

Université de Limoges, LAPE ( email )

5 rue Félix Eboué
BP 3127
Limoges Cedex 1, 87031
France

Philippe Rous

Université de Limoges, LAPE ( email )

5 rue Félix Eboué BP3127
LIMOGES, 87031
France

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
719
PlumX Metrics