Bank Profits and Margins in a World of Negative Rates

Posted: 22 Aug 2019

See all articles by Philip Molyneux

Philip Molyneux

University of Sharjah - College of Business Administration

Alessio Reghezza

Bangor Business School

Ru Xie

University of Bath, School of management

Date Written: August 19, 2019

Abstract

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.

Keywords: Negative interest rates, bank profitability, NIMs, difference-in-differences estimation, propensity score matching

JEL Classification: E43, E44, E52, G21, F34

Suggested Citation

Molyneux, Philip and Reghezza, Alessio and Xie, Ru, Bank Profits and Margins in a World of Negative Rates (August 19, 2019). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3440504

Philip Molyneux (Contact Author)

University of Sharjah - College of Business Administration ( email )

University City Road
Sharjah, 27272
United Arab Emirates

Alessio Reghezza

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Ru Xie

University of Bath, School of management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

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