In the novel monetary environment of negative interest policy rates (NIPR) in the Euro area, it is questionable whether the existing findings on determinants of Net Interest Margins (NIM) still hold. This paper analyzes differences in the development of NIM across business models represented by a set of three indicators prior to and after the introduction of NIPR. The strategies are based on a binary categorization between high and low levels of the business indicators using a median, 67-33 and 80-20 percentile cut-off rule. I use a difference in differences (DiD) estimation approach, even though NIPR impact all banks’ NIM. Thus, the obtained estimates do not measure the impact of NIPR itself, but the DiD between strategies. I mostly find positive albeit insignificant effects on banks with low asset held for trading, high deposit and customer loan ratios. In contrast, the DiD coefficient for banks with high deposit-based financing using an 80-20 cut-off is -14 bp, which proves to be a highly significant and economically relevant. These findings support the notion that multiple channels are affecting banks’ NIM.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Literature Review
- Determinants of NIM
- Heterogeneous Effects of NIPR on NIM
- Data and Descriptive Evidence
- Econometric Approach and Business Strategy Indicators
- Results
- Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
The paper aims to investigate the impact of negative interest policy rates (NIPR) on banks' net interest margins (NIM) in the Euro area. It seeks to determine if the existing findings on NIM determinants still hold true in the current monetary environment of NIPR.
- Impact of NIPR on bank profitability
- Determinants of NIM in the context of NIPR
- Heterogeneous effects of NIPR across different banking strategies
- Analysis of business models and their influence on NIM
- Comparison of NIM development before and after the introduction of NIPR
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: The paper introduces the concept of NIPR and its potential impact on the banking industry. It highlights the importance of analyzing the impact of NIPR on bank profitability, specifically focusing on the net interest margin (NIM).
- Literature Review: This section reviews existing literature on determinants of NIM, highlighting the theoretical model of Ho and Saunders (1981). It also discusses mechanisms through which NIPR can have a heterogeneous effect on NIM.
- Data and Descriptive Evidence: This chapter describes the dataset used for the study, which covers accounting and financial reporting information for a sample of banks in Europe from 2006 to 2017. It provides descriptive evidence on heterogeneous developments of NIM in the banking industry.
- Econometric Approach and Business Strategy Indicators: This section details the econometric approach employed in the study, which involves a difference-in-differences (DiD) estimation. It also discusses the selection of business strategy indicators used to analyze the impact of NIPR on different banking strategies.
- Results: This chapter presents the findings of the empirical analysis. It examines the effects of NIPR on NIM across different banking strategies, focusing on the relationship between NIPR and NIM in the context of various business models.
Schlüsselwörter (Keywords)
The paper focuses on key concepts like negative interest policy rates (NIPR), net interest margins (NIM), bank profitability, banking strategies, business models, difference-in-differences (DiD) estimation, and the Euro area.
- Quote paper
- Valentin Stockerl (Author), 2019, Determinants of Net Interest Margins. Are Banks equally affeced by Negative Interest Policy Rates?, Munich, GRIN Verlag, https://www.grin.com/document/462285
