Bank Intermediation Margin in Time of Negative Interest Rate Policy

22 Pages Posted: 16 Dec 2019 Last revised: 11 May 2020

See all articles by Whelsy Boungou

Whelsy Boungou

University of Bordeaux

Charles Mawusi

University of Bordeaux - GREThA (Research Group in Theoretical and Applied Economics); University of Bordeaux

Date Written: May 10, 2020

Abstract

Following the 2008 Global Financial Crisis, the central banks from many advanced economies resorted to unconventional monetary policies including, the adoption of a negative interest rate policy, aimed at spurring economic recovery and growth. The effectiveness of a negative interest rate policy remains an ongoing debate and largely limited to theoretical assertions. Using a dataset that comprises 9638 banks from 59 countries over the period 2009–2018, and a Difference-in-Differences estimator, this paper examines whether the adoption of a negative interest rate policy has any effect on bank intermediation margins. We find that bank margins have contracted in countries where negative rates have been implemented. Our results highlight that this margin compression is related to a downwardly rigid customer deposit rate. Moreover, we show that the effects of NIRP on bank intermediation margins were stronger for smaller, less capitalized, deposit-dependent banks. Finally, our findings indicate that banks reliant on retail deposits increased lending in response to NIRP.

Keywords: Negative Interest Rates, Bank Margins, Interest Expenses, Interest Income, Difference-in-Differences Estimation

JEL Classification: E43, E51, E52, F34, G21

Suggested Citation

Boungou, Whelsy and Mawusi, Charles, Bank Intermediation Margin in Time of Negative Interest Rate Policy (May 10, 2020). Available at SSRN: https://ssrn.com/abstract=3495247 or http://dx.doi.org/10.2139/ssrn.3495247

Whelsy Boungou (Contact Author)

University of Bordeaux ( email )

Avenue Léaon Duiguit
Pessac, 33000
France
+33 6 19 20 34 16 (Phone)

HOME PAGE: http://https://sites.google.com/site/whelsyboungou/home

Charles Mawusi

University of Bordeaux - GREThA (Research Group in Theoretical and Applied Economics) ( email )

Pessac, 33400
France

University of Bordeaux ( email )

Avenue Léon Duguit
Bordeaux, 33000
France

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