RDP 2023-05: The Impact of Interest Rates on Bank Profitability: A Retrospective Assessment Using New Cross-country Bank-level Data Appendix A: Summary of Selected Bank-level Papers

Callan Windsor, Terhi Jokipii and Matthieu Bussiere

June 2023

Table A1: Summary of Selected Bank-level Papers
Paper Sample Data Method Main findings
Borio, Gambacorta and Hofmann (2017)
  • Sample: 14 advanced economies
  • Banks: 109; large international
  • Time period: 1995–2012
 BankScope Dynamic panel regressions
  • Lower rates are associated with lower profits
  • Lower rates lower net interest income, which more than offsets positive impact on non-interest income and loan-loss provisions
Claessens, Coleman and Donnelly (2018)
  • Sample: 47 countries
  • Banks: 3,385
  • Time period: 2005–13
 BankScope Panel with FE regressions
  • Lower interest rates lower bank profitability
  • Impact is larger for net interest margins compared to overall profitability
Altavilla, Boucinha and Peydró (2018)
  • Sample: euro area
  • Banks: 288
  • Time period: 2000–16
 iBSI;
BankScope;
SNL Financial;
Bloomberg;
Capital IQ		 Panel with FE regressions
  • Lower rates have a negative impact on net interest margins, which is offset by a positive impact on loan-loss provisions
  • Lower rates are not associated with lower profits if current and expected economic and financial conditions are controlled for
Bikker and Vervliet (2018)
  • Sample: US
  • Banks: 3,582
  • Time period: 2001–15
 Federal Deposit Insurance Corporation Panel GMM estimation
  • Lower interest rates compress net interest margins, but lower loan-loss provisions
  • Lower rates are not associated with lower profits
Molyneux, Reghezza and Xie (2019)
  • Sample: 33 OECD countries
  • Banks: 7,352
  • Time period: 2012–16
 Orbis BankFocus;
SNL Financial		 Panel DiD regressions
  • Bank margins and overall profitability fared worse in countries with negative interest rate policies
  • Large banks were able to mitigate negative effects; stronger adverse effects were found in countries with more competitive banking systems
Lopez, Rose and Spiegel (2020)
  • Sample: 27 European countries and Japan
  • Banks: 5,200
  • Time period: 2010–17
 Fitch Global Banking Panel with FE regressions
  • Negative rates lower net interest income
  • This impact largely offset by increases in non-interest income stemming from ‘other income’ sources, such as capital gains on securities
Beauregard and Spiegel (2020)
  • Sample: 27 European countries and Japan
  • Banks: 5,300
  • Time period: 2010–18
 Fitch Global Banking Panel with FE regressions
  • A protracted period of negative rates reduces bank profitability, primarily due to banks' reluctance to pass negative rates along to retail depositors