By investigating the influence of negative interest rate policy (NIRP) on bank margins and profitability, this paper identifies country-and bank-specific characteristics that amplify or weaken the effect of NIRP on bank performance. Using a dataset comprising 7,359 banks from 33 OECD member countries over 2012-2016 and a difference-in-differences methodology, we find that bank margins and profits fell in NIRP-adopter countries compared to countries that did not adopt the policy. Moreover, this adverse NIRP effect depends on bank specificcharacteristics such as size, funding structure, business models, assets repricing and productline specialization. The effectiveness of the pass-through mechanism of NIRP can also be affected by the characteristics of a country's banking system, namely, the level of competition and the prevalence of fixed/floating lending rates.

Banks, Market structure, Risk shifting, Franchise value, Capital regulation, G21, G28,

This paper discusses the effects of small banks on economic growth. We first theoretically show that small banks operating at a regional level can spur local economic growth. As compared with big interregional banks, small regional banks are more effective in promoting local economic growth, especially in regions with lower initial endowments and severe credit rationing. We then test the model predictions using a sample of German banks and corresponding regional statistics. We find that small regional banks are more important funding providers in regions with low access to finance. The empirical results support the theoretical hypotheses.

This paper discusses the effects of small banks on economic growth. We first theoretically show that small banks operating at a regional level can spur local economic growth. As compared with big interregional banks, small regional banks are more effective in promoting local economic growth, especially in regions with lower initial endowments and severe credit rationing. We then test the model predictions using a sample of German banks and corresponding regional statistics. We find that small regional banks are more important funding providers in regions with low access to finance. The empirical results support the theoretical hypotheses.JEL Classification: G21, O16, R11. for their helpful comments. We sincerely thank the referee for his/her detailed comments. Errors and omissions remain the responsibility of the authors.