XXV Edition

1-2 December 2016"

Determinants of Bank’s Interest Margin in the Aftermath of the Crisis: the Effect of Interest Rates and the Yield Curve Slope

Cruz-García Paula, University of Valencia
Fernández de Guevara Juan, The Valencian Institute of Economic Research (IVIE) and University of Valencia
Maudos Joaquín , The Valencian Institute of Economic Research (IVIE) and University of Valencia

The determinants of bank interest margin are analysed, focusing on the impact of the interest rates and the slope of the yield curve, using a large panel of banks of 32 countries covering the period 2008-2014, whose start being coincident with the outbreak of the financial crisis.The results show that the measures of expansionary monetary policy adopted by many central banks to combat the crisis have had a negative impact on net interest income due to the reduction of interest rates and, with less intensity, to the flattening of the slope of the yield curve.Given that the impact of both variables is quadratic, a potential normalisation of monetary policy would be beneficial for margin recovery. Symmetrically, high persistency of the current scenario of reduced rates would have adverse effects on bank margins and, ultimately, their profitability.

Area: Banking

Keywords: bank interest margin, yield curve, interest rates

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