Determinants of the Interest Rate Pass-Through of Banks: Evidence from German Loan Products

72 Pages Posted: 21 Jun 2016

See all articles by Tobias Schlueter

Tobias Schlueter

University of Cologne - Department of Banking & Finance

Ramona Busch

Deutsche Bundesbank

Thomas Hartmann-Wendels

University of Cologne - Department of Banking

Soenke Sievers

Paderborn University

Date Written: 2012

Abstract

This article examines the loan rate-setting behavior of German banks for a large variety of retail and corporate loan products. We find that a bank's operational efficiency is priced in bank loan rates and alters interest-setting behavior. Specifically, we establish that a higher degree of operational efficiency leads to lower loan markups, which involve more competitive prices, and smoothed interest rate-setting. This study contributes to prior literature that has been suggesting this relationship but has produced mixed findings. For the German market this relationship is unexplored. By employing stochastic frontier analysis to comprehensively capture cost efficiency, we take the bank customers' perspective and demonstrate the extent to which borrowers benefit from cost efficient banking.

Keywords: interest rate pass-through models, error correction models, bank efficiency, cost efficiency, stochastic frontier analysis

JEL Classification: G21, G28

Suggested Citation

Schlueter, Tobias and Busch, Ramona and Hartmann-Wendels, Thomas and Sievers, Soenke, Determinants of the Interest Rate Pass-Through of Banks: Evidence from German Loan Products (2012). Bundesbank Discussion Paper No. 26/2012. Available at SSRN: https://ssrn.com/abstract=2796882

Tobias Schlueter (Contact Author)

University of Cologne - Department of Banking & Finance ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany
00492214701670 (Phone)

Ramona Busch

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Thomas Hartmann-Wendels

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
D-50923 Cologne
Germany

Soenke Sievers

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

HOME PAGE: http://www.upb.de/accounting

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
34
Abstract Views
300
PlumX Metrics