Monetary Policy and Bank Profitability in a Low Interest Rate Environment: A Follow-Up and a Rejoinder

29 Pages Posted: 30 May 2019

See all articles by Charles Goodhart

Charles Goodhart

London School of Economics & Political Science (LSE) - Financial Markets Group

Ali Kabiri

University of Buckingham - Department of Economics and International Studies; Financial Markets Group - LSE

Date Written: May 2019

Abstract

There is a debate about the effect of the extremely low, or even negative, interest rate regime on bank profitability. On the one hand it raises demand and thereby adds to bank profits, while on the other hand it lowers net interest margins, especially at the Zero Lower Bound. In this paper we review whether the prior paper by Altavilla, Boucinha and Peydro (2018) on this question for the Eurozone can be generalized to other monetary blocs, i.e. USA and UK. While our findings have some similarity with their earlier work, we are more concerned about the possible negative effects of this regime, not only on bank profitability but also on bank credit extension more widely.

Keywords: Bank profitability, credit extension, Low interest rates, Net interest margin

JEL Classification: E52, G18, G21, G28

Suggested Citation

Goodhart, Charles A.E. and Kabiri, Ali, Monetary Policy and Bank Profitability in a Low Interest Rate Environment: A Follow-Up and a Rejoinder (May 2019). CEPR Discussion Paper No. DP13752. Available at SSRN: https://ssrn.com/abstract=3395190

Charles A.E. Goodhart (Contact Author)

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom
0207 955 7555 (Phone)
0207 242 1006 (Fax)

Ali Kabiri

University of Buckingham - Department of Economics and International Studies ( email )

United States

Financial Markets Group - LSE ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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