Bank margins and profits in a world of negative rates

Molyneux, Philip; Reghezza, Alessio; Xie, Ru

doi:10.1016/j.jbankfin.2019.105613

Cited by 105 publications

(96 citation statements)

References 51 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…The authors show that low interest rates are associated with lower profitability for banks, particularly for smaller institutions 10 . In the same spirit, using Difference-in-Difference methodology Molyneux et al (2018) find that during the implementation of negative interest rates bank margins and bank profits declined. They also document that this negative effect is greater for smaller banks.…”

Section: Interest Rates and Banks' Profitabilitymentioning

confidence: 89%

“…The results of this literature are not unanimous as to the effects of negative rates on bank profitability. On the one hand, some papers show that negative rates have negative effects on profitability (among others, Kerbl and Sigmund, 2017;Molyneux et al 2018). On the other hand, other studies find the opposite results (Scheiber et al 2016;Jobst and Lin, 2017;Madaschid and Nuevo, 2017;Basten and Mariathsan, 2018).…”

Section: Hypothesis 1: Negative Interest Rates Impact Banks' Profitabmentioning

confidence: 99%

See 1 more Smart Citation

Negative Interest Rates, Bank Profitability and Risk-taking

Boungou

2019

SSRN Journal

View full text Add to dashboard Cite

Using a panel dataset of 2442 banks operating in the 28 EU countries over the period from 2011 to 2017, this paper aims to assess the impact of negative interest rates on banks" profitability and risk-taking. Using dynamic panel models, we find that the effect of negative interest rates on banks' margins is stronger compared to an environment of positive rates. We notice that negative rates have squeezed banks' net interest margins. We also find that banks have offset the effects on margins by increasing non-interest income. Furthermore, negative interest rates contributed to a reduction in banks' risk-taking. Finally, we note that the effects of negative rates on profitability and risk-taking differ among banks, depending on their specific balance sheet characteristics.

show abstract

Section: Interest Rates and Banks' Profitabilitymentioning

confidence: 89%

Section: Hypothesis 1: Negative Interest Rates Impact Banks' Profitabmentioning

confidence: 99%

Negative Interest Rates, Bank Profitability and Risk-taking

Boungou

2019

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…The fact that holding large sums of cash is also costly has allowed some central banks-for example, the ECB and BOJ-to reduce interest rates to modestly negative levels. Molyneux, Reghezza, and Xie (2019) argue that negative interest rates put pressure on the financial system's health, while many others find no evidence of this (Jobst and Lin, 2016;Basten and Mariathasan, 2018;Lopez, Rose, and Spiegel, 2020;andArteta et al, 2016 and.…”

Section: Discussionmentioning

confidence: 99%

Responses of International Central Banks to the COVID-19 Crisis

Haas

Neely

Emmons

2020

View full text Add to dashboard Cite

Concerns about the spread of the COVID-19 virus and its effect on economic activity produced one of the most turbulent periods of financial market activity in history from mid-February to April 2020. In some ways, this episode resembled the events of September-October 2008, during the Global Financial Crisis (GFC) of 2007-09. Severe problems arose suddenly in international financial markets. Uncertainty and fear raised volatility and led investors to broadly sell risky assets, which reduced their prices. International authorities responded to both the GFC and the recent COVID-19-inspired crisis. Fiscal authorities increased spending, including providing much more generous unemployment benefits, while central banks made credit more widely available in financial markets and supported markets for illiquid securities. Regulators allowed banks to reduce their capital and liquidity buffers and encouraged lenders to work with borrowers. But there are significant differences between the two events, too. The events of September 2008 resembled a bank run. Investors became uncertain about the value of some types of risky housing assets-mortgage-backed securities (MBS) and other asset-backed securities (ABS) not guaranteed by the government and collateralized debt obligations-and therefore sought to reduce their exposure to all such assets and the firms that might own them or have guaranteed them. This article reviews and explains the recent policy reactions of the Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan to the financial and macroeconomic turmoil caused by the COVID-19 pandemic. The financial and monetary policy actions of major central banks in the most recent crisis have, by some metrics, surpassed their responses to the Global Financial Crisis of 2007-09 in both swiftness and scope. (JEL E58, E59, G01, E44, G15)

show abstract

“…The measures include nonstandard monetary policies, including large‐scale asset purchases, quantitative easing, forward guidance and the negative interest rates policy (NIRP), and the outcome has been historically low policy and/or official interest rates. This has led policy‐makers to express concern at the negative impact on bank margins and profitability (Alessandri & Nelson, 2015; Molyneux, Reghezza, & Xie, 2019).…”

Section: Introductionmentioning

confidence: 99%

“…Specifically, they find that a decrease from 3% to 0% in interest rates increases fee income in the short term from 14.2% to 15.2% of total income. Finally, Molyneux et al (2019) show that when NIRP compresses bank margins and profits, large banks modify their business model and expand fee and commission income.…”

Section: Introductionmentioning

confidence: 99%

Banks' noninterest income and securities holdings in a low interest rate environment: The case of Italy

Molyneux

Reghezza

Torriero

et al. 2020

Euro Fin Management

Self Cite

View full text Add to dashboard Cite

Using a sample of 440 Italian banks over the period 2007–2016, we find that low interest rates motivate banks to expand their fee and commission income and to restructure their securities portfolios. A granular breakdown suggests that banks grow noninterest income in various ways, including portfolio management, brokerage and consultancy services and increase fee income from current account and payment services. In addition, banks rebalance securities portfolios away from those “held for trading” to securities “available for sale” and “held to maturity.” Our findings allude to different behavior between large and small banks: while larger banks increase brokerage, consultancy and portfolio management services, smaller banks generate fees from customer current accounts.

show abstract

Bank margins and profits in a world of negative rates

Cited by 105 publications

References 51 publications

Negative Interest Rates, Bank Profitability and Risk-taking

Negative Interest Rates, Bank Profitability and Risk-taking

Responses of International Central Banks to the COVID-19 Crisis

Banks' noninterest income and securities holdings in a low interest rate environment: The case of Italy

Contact Info

Product

Resources

About