What Determines the Interest Margin? An Analysis of the German Banking System

Kredit und Kapital: Vol. 46, No. 4, pp. 467-494 (2013) doi: 10.3790/kuk.46.4.467

Posted: 20 Jun 2014

See all articles by Andreas Buehn

Andreas Buehn

University of Cooperative Education Bautzen

Alexander Karmann

Dresden University of Technology - Faculty of Economics and Business Management

Marco Pedrotti

University of Potsdam

Date Written: January 1, 2013

Abstract

This paper analyzes the determinants of the interest margin of German banks over the period 1995-2007, explicitly addressing differences among different bank groups. We use three empirical models to focus on the following aspects: the time evolution of the interest margin, the average differences across groups, and the presence of autoregressive effects. For each model our results show that the interest margin can be mainly explained by market power and inefficiency, the influence of which is particularly high for cooperative banks. The Winner's Curse phenomenon and the cross-subsidization strategy negatively influence the margin of private banks.

Keywords: Interest Margin, Market power, Winner’s Curse, Saving banks, Cooperative Banks, Germany

JEL Classification: G21

Suggested Citation

Buehn, Andreas and Karmann, Alexander J. and Pedrotti, Marco, What Determines the Interest Margin? An Analysis of the German Banking System (January 1, 2013). Kredit und Kapital: Vol. 46, No. 4, pp. 467-494 (2013) doi: 10.3790/kuk.46.4.467 . Available at SSRN: https://ssrn.com/abstract=2456708

Andreas Buehn (Contact Author)

University of Cooperative Education Bautzen ( email )

Loebauer Strasse 1
Bautzen, 02625
Germany

Alexander J. Karmann

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
Dresden, D-01062
Germany

Marco Pedrotti

University of Potsdam ( email )

August-Bebel Strasse 89
Potsdam, 14482
Germany

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