Key factors of the net interest margin of European andUSbanks in a low interest rate environment

Petr Hanzlik,Petr Teply

International Journal of Finance & Economics(2022)

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Abstract
In this paper, we contribute to the literature by examining the determinants of net interest margin (NIM) of European and US banks in a zero lower bound situation while controlling for important institutional design factors. We analyse a large sample of annual data on 629 European banks and 526 US during the 2011-2016 period, which also covers periods of zero and negative rates in many of the observed countries. We test three hypotheses and come to three main conclusions. First, NIM is significantly influenced by the different institutional designs of capital-based (the UK and the US) and bank-based financial markets (continental Europe). Second, there are differences in NIM caused by bank size. Finally, we show significant differences by bank type: savings banks, real estate and mortgage banks, and cooperative banks report consistently lower NIMs than commercial banks and bank holdings. Contrary to other researchers, we observe a negative relationship between NIM and the yield curve slope.
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Key words
banks, institutional design, interest rates, net interest margin, profitability, system GMM
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