The Effects of Bundling Strategy on Bank Interest Margins: Theoretical and Empirical Evidence
29 Pages Posted: 22 Apr 2021 Last revised: 16 Oct 2021
Date Written: October 15, 2021
This study theoretically categorizes fee and commission income as compulsory and complementary, and incorporates them into the Ho and Saunders (1981) bank model in the presence of bundling strategy, as a popular banking strategy. By also considering different information levels of customers, the study finds a negative relationship between interest income and these two non-interest income components. These negative relationships are tested by analyzing the determinants of banks' net interest margin for 14 European countries. The results confirm that the theoretical findings hold.
Keywords: Bundling, Non-interest income, European banking, Interest margin, Diversification
JEL Classification: G21, G28
Suggested Citation: Suggested Citation