Working Paper: CEPR ID: DP11842
Authors: Stijn Claessens; Nicholas Coleman; Michael Donnelly
Abstract: Interest rates in many advanced economies have been low for almost a decade now and are often expected to remain so. This creates challenges for banks. Using a sample of 3,385 banks from 47 countries from 2005 to 2013, we find that a one percentage point interest rate drop implies an 8 basis points lower net interest margin, with this effect greater (20 basis points) at low rates. Low rates also adversely affect bank profitability, but with more variation. And for each additional year of “low for long”, margins and profitability fall by another 9 and 6 basis points, respectively.
Keywords: Interest rates; Bank profitability; Net interest margin; Low-for-long
JEL Codes: G21; E43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Interest Rates (E43) | Net Interest Margins (NIMs) (G21) |
| Low Interest Rates (E43) | Net Interest Margins (NIMs) (G21) |
| Low Interest Rates (E43) | Bank Profitability (G21) |
| Duration of Low Rates (E43) | Net Interest Margins (NIMs) (G21) |
| Duration of Low Rates (E43) | Bank Profitability (G21) |
| Interest Rate Changes (E43) | Bank Profitability (G21) |
| Interest Rate Changes (E43) | Net Interest Margins (NIMs) (G21) |
| Bank Maturity Structure (G21) | Impact of Interest Rate Changes (E43) |