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RBA Glossary definition for interest rate

interest rate – The term used to describe the cost of borrowing money or the return to the owner of the funds which are invested or lent out. It is usually expressed as a percent per annum of the amount of money borrowed, lent or invested.

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The Impact of Interest Rates on Bank Profitability: A Retrospective Assessment Using New Cross-country Bank-level Data

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
Research Discussion Paper – RDP 2023-05 The Impact of Interest Rates on Bank Profitability: A Retrospective Assessment Using New Cross-country Bank-level Data. ... Our analysis confirms the empirical regularity that declining interest rates reduce
https://www.rba.gov.au/publications/rdp/2023/2023-05.html

References

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
Brassil A (2022), ‘The Consequences of Low Interest Rates for the Australian Banking Sector’, RBA Research Discussion Paper No 2022-08. ... Brunnermeier MK and Y Koby (2018), ‘The Reversal Interest Rate’, NBER Working Paper No 25406.
https://www.rba.gov.au/publications/rdp/2023/2023-05/references.html

Data Description

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
To examine the impact of interest rates on banks' profitability, we rely on confidential bank-level data. ... NIMs and ROAs against the change in interest rates for the mean bank in all countries.
https://www.rba.gov.au/publications/rdp/2023/2023-05/data-description.html

The Impact of Interest Rates on Bank Profitability: A Retrospective Assessment Using New Cross-country Bank-level Data

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
Given the stock of variable-rate loans is larger than the flow, lower interest rates are expected to lower provisions. ... With lower short-term interest rates compressing NIMs, banks reacted by increasing loan volumes, which were funded at the MRO rate.
https://www.rba.gov.au/publications/rdp/2023/2023-05/full.html

Literature on Bank Profitability and Interest Rates

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
Literature on Bank Profitability and Interest Rates. Callan Windsor, Terhi Jokipii and Matthieu Bussiere. ... Starting with the impact on banks' interest margins, several studies identify a nonlinear relationship between interest rates and NIMs, with the
https://www.rba.gov.au/publications/rdp/2023/2023-05/literature-on-bank-profitability-and-interest-rates.html

Conclusion

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
looking back at the period when central banks lowered interest rates to mitigate the risks of deflation. ... In addition, holding interest rates ‘lower for longer’ does not appear to change the results noticeably.
https://www.rba.gov.au/publications/rdp/2023/2023-05/conclusion.html

Non-technical summary for ‘The Impact of Interest Rates on Bank Profitability: A Retrospective Assessment Using New Cross-country…

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
This is because banks tend to avoid reducing interest rates on deposits below a certain ‘low-rate’ threshold, which can lower their profits. ... Identifying the channels through which interest rates affect profitability allows us to dig deeper into
https://www.rba.gov.au/publications/rdp/2023/2023-05/non-technical-summary.html

Appendix A: Summary of Selected Bank-level Papers

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
Federal Deposit Insurance Corporation. Panel GMM estimation. Lower interest rates compress net interest margins, but lower loan-loss provisions. ... SNL Financial. Panel DiD regressions. Bank margins and overall profitability fared worse in countries
https://www.rba.gov.au/publications/rdp/2023/2023-05/appendix-a.html

The Impact of Interest Rates on Bank Profitability: A Retrospective Assessment Using New Cross-country Bank-level Data

21 Jun 2023 RDP 2023-05
Jonathan Hambur
Research Discussion Paper – RDP 2023-05 The Impact of Interest Rates on Bank Profitability: A Retrospective Assessment Using New Cross-country Bank-level Data.
https://www.rba.gov.au/publications/rdp/2023/2023-05/sections.html

Read me file

21 Jun 2023 RDP 2023-05
Callan Windsor, Terhi Jokipii and Matthieu Bussiere
RDP 2023-05: The Impact of Interest Rates on Bank Profitability: A Retrospective Assessment Using New Cross-country Bank-level Data Read me file.
https://www.rba.gov.au/publications/rdp/2023/2023-05/read-me.html