The determinants of net interest income in the Mexican banking system: An integrated model

This paper analyzes net interest income in the Mexican banking system over the period 1993–2005. Taking as reference the seminal work by Ho and Saunders [Ho, T., Saunders, A., 1981. The determinants of banks interest margins: theory and empirical evidence. Journal of Financial and Quantitative Analysis XVI (4), 581–600] and subsequent extensions by other authors, our study models the net interest margin simultaneously including operating costs and diversification and specialization as determinants of the margin. The results referring to the Mexican case show that its high margins can be explained mainly by average operating costs and by market power. Although non-interest income has increased in recent years, its economic impact is low.     

我国上市银行利差决定因素分析

本文对国内2000～2009年间上市银行利差率的决定因素按照银行经营的安全、效率和盈利指标,结合行业和宏观经济状况等因素进行了实证分析。结论表明,虽然股份制上市银行经营状况普遍优于国有银行,但其经营行为可能会部分抵消央行的利率政策,同时股票市场发展对银行经营没有显著性影响。     

The determinants of bank interest rate margins: an international study

This paper studies the determinants of bank net interest margins (NIMs) in six selected European countries and the US during the period 1988–1995 for a sample of 614 banks. We apply the Ho and Saunders model (Ho, T., Saunders, A., 1981. The determinants of bank interest margins: theory and empirical evidence. Journal of Financial and Quantitative Analyses 16, 581–600) to a multicountry setting and decompose bank margins into a regulatory component, a market structure component and a risk premium component. The regulatory components in the form of interest-rate restrictions on deposits, reserve requirements and capital-to-asset ratios have a significant impact on banks NIMs. The empirical results suggest an important policy trade-off between assuring bank solvency—high capital-to-asset ratios—and lowering the cost of financial services to consumers—low NIMs. The more segmented or restricted the banking system—both geographically and by activity—the larger appears to be the monopoly power of existing banks, and the higher their spreads. Macro interest-rate volatility was found to have a significant impact on bank NIMs; this suggests that macro policies consistent with reduced interest-rate volatility could have a positive effect in reducing bank margins.     

Interest margins and bank regulation in Central America and the Caribbean

This paper examines empirically the determinants of bank interest margins in Central America and the Caribbean over the period 1998–2014. A particular focus is set on the impact of differences in the regulatory environment and market structure across countries in explaining the interest margins of individual banks. Our results suggest that bank market power, operating costs, credit risk, and liquid asset holdings increase the margin between loan and deposit rates, while increased income diversification and GDP growth are associated with lower loan-deposit spreads. When considering information on banking regulation, we find strong evidence to support our main hypothesis that improvements in market quality and liberalization have a significant effect on interest margins. More specifically, reductions in entry requirements to banking, higher involvement of foreign banks, and increased financial statement transparency are associated with significant reductions in interest margins.     

A time series/cross section analysis of the determinants of Australian trading bank loan/deposit interest margins: 1962–1981

A theoretical model of the determination of trading bank interest margins, based on the hedging theory of interest margin determination, is tested on time series cross-section data of Australian trading banks. Generally, the results are consistent with that theory. That is, there exists a stable non-linear relationship between Australian trading bank net loan/deposit interest margins and measures of market power, degree of absolute risk aversion, and to interest rate uncertainty. Furthermore, the shift from business sector to personal sector loan and deposit business is associated with increased bank interest margins.     

Capital flows to emerging market economies: A brave new world?

We examine the determinants of net private capital inflows to emerging market economies (EMEs) since 2002. Our main findings are: First, growth and interest rate differentials between EMEs and advanced economies and global risk appetite are statistically and economically important determinants of net private capital inflows. Second, there have been significant changes in the behavior of net inflows from the period before the recent global financial crisis to the post-crisis period, especially for portfolio inflows, partly explained by the greater sensitivity of such flows to interest rate differentials since the crisis. Third, capital controls introduced in recent years do appear to have discouraged both total and portfolio net inflows. Finally, we find positive effects of unconventional U.S. monetary policy on EME inflows, especially portfolio inflows. Even so, U.S. unconventional policy is one among several important factors influencing flows.     

Factors Determining Net Interest Margins in Australia: Domestic and Foreign Banks

This study tests the application of the Ho and Saunders (1981) model of bank net interest margins (NIMs), and its subsequent developments, using Australian data. The core elements of this model apply in Australia. Bank market power is found to increase NIMs, consistent with McShane and Sharpe (1985) , with evidence of bank buying market share and mispricing for risk. Operating costs also have an important role in determining NIMs, together with implied payments and management quality. Bank NIMs are found to have fallen over the study period.     

中国银行业净利差的影响因素

在Ho-Saunders领导模型的基础上引入非利差收入、非传统贷款资产及央行基准利差因素,提出了更适合中国银行业现状的多产品纯利差决定模型。采用2000～2008年间23家商业银行的面板数据进行实证分析,结果发现影响净利差的因素有:风险厌恶程度、运营成本、信用风险、资产规模、上年净利差、非利差收入、非传统资产及基准利差等。根据这些因素可以看出,四大商业银行近年净利差波动性较大,而中小股份制商业银行经营日趋稳定。中国商业银行应致力于拓展中间业务及产品多样化,逐步改变传统盈利模式和收入结构。     

Deriving value or risk? Determinants and the impact of emerging market banks’ derivative usage

This paper examines the determinants of the emerging market banks’ derivative usage and the impact of derivative usage on bank value, total risk and bank stability. Our empirical evidence first suggests that derivative usage is driven primarily by net interest margin, bank concentration and institutional strength. In addition, although derivative usage appears to reduce emerging market bank value, it does not affect total risk. Moreover, emerging market banks can reduce bank instability using derivatives. Our findings have important implications for investors and policy makers focusing on emerging derivatives markets.     

How do banks price liquidity? The role of market power.

We empirically examine the effects of different measures of liquidity on interest margins of a sample of U.S. commercial banks from 2001 to 2018. Overall, the results reveal that liquidity ratios exert a positive influence on bank margins. Furthermore, the study investigates the role of market power in the relationship between liquidity and interest margins. It is documented that dominant banks incorporate the costs associated with investing in liquidity into the bank margins to a lesser extent than banks with less market power, suggesting that the cost of complying with regulatory liquidity standards is reduced when the competition in the banking sector is less intense. The study highlights that market competition might be important in the design and implementation of liquidity regulations.     

What determines interest rates for bitcoin lending?

This study analyses the determinants of interest rates in the cryptocurrency lending market using a unique database from the Decentralised Finance platform. We confirm the existence of both mediation and moderation effects in the cryptocurrency lending market by employing a moderated mediation model. First, the empirical results show that the interest rate is closely related to the loan-to-value ratio, which works as the mediation variable in lending. Second, the interest rate reveals a clear connection with price fluctuations of Bitcoin. This brings up the momentum phenomenon in the lending process and incentives borrowers to acquire more money, leading to pro-cyclical speculation. Third, the lending amount reflects a moderation effect in the lending market, and the net effect of the currency price on the interest rate turns negative when the loan amount exceeds a threshold, resulting in the ‘seesaw’ effect in cryptocurrency lending. The above findings confirm that cryptocurrency lending reflects a certain degree of option characteristics and complies with the risk-debt model, which provides more evidence for understanding the momentum phenomenon and investor behaviour in the cryptocurrency lending market.     

Determinants of bank interest margins: Impact of maturity transformation

This paper explores the extent to which interest risk exposure is priced into bank margins. Our contribution to the literature is twofold: First, we extend the Ho and Saunders (1981) model to capture interest rate risk and expected returns from maturity transformation. Banks price interest risk according to their individual exposure separately in loan and deposit intermediation fees, but reduce (increase) these charges for loans (deposits) when positive excess holding period returns from long-term exposures are expected. Second, we test the model-derived hypotheses not only for the commonly investigated net interest margin but also for interest income and expense margins separately in a sample encompassing the German universal banking sector between 2000 and 2009. Our results suggest that banks price their individual interest rate risk and corresponding expected excess holding period returns via the asset side into the net interest margin. For liabilities, we find that interest rate risk exposure is only priced in by smaller, local banks.     

Interest rate spreads and banking system efficiency: General considerations with an application to the transition economies of Central and Eastern Europe

Low spreads between loan rates and deposit rates are indicative of a more efficient financial system. We argue that spreads are better cross country measures of banking system efficiency than the net interest margins used in previous studies. We present theoretical and empirical evidence that the spread may be a particularly good measure of efficiency, both for the transition economies and other countries. The spread is a financial intermediation measure and is highly negatively correlated with conventional measures of intermediation. Consistent with theory, the spread is negatively related to economic growth. We also find that the spread has determinants similar to other FI measures. International agencies should report spreads and put more emphasis on this measure of efficiency.     

The determinants of interest margins and their effect on bank diversification: Evidence from Asian banks

An endogenous switching regression model is employed for this study, categorizing the banks into regimes of high and low degrees of diversification, with our results indicating that net interest margins can be less sensitive to fluctuations in bank risk factors for functionally diversified banks as compared to more specialized banks. In turn, this implies that by diversifying their income sources, these banks can reduce the shocks to net interest margins arising from idiosyncratic risk. Our results show that prior findings can hold when the banks are located in a regime with a low degree of diversification.     

Factors affecting the performance of foreign-owned banks in Australia: A cross-sectional study

This study extends the existing literature of international banking by constructing a model of foreign intermediaries in Australia. An unresolved question is establishing those factors that result in banking across borders. While a variety of theories attempt to explain international banking, empirical tests are sparse (Mahajan, A., Rangan, N., Zardkoohi, A., 1996. Journal of Banking and Finance 20, 283–306). This study considers if the results to date apply in non US settings. Foreign bank size was found to be a positive function of bank licence, parent size and time in Australia, and a negative function of Australian net interest margins and fees. The negative sign on net interest margins and fees is consistent with De Young, R., Nolle, D., 1996. Journal of Money, Credit and Banking 28, 622–636. Foreign bank profits were a positive function of Australian net interest margins and fees. There was limited evidence of defensive expansion. This paper concludes that foreign bank size is explained well by the existing theories of international banking, but a wider model is appropriate for foreign bank profits.     

The determinants of bank margins in European banking

Most of the theoretical and empirical literature on bank margins has dealt solely with interest margins. Applying the seminal Ho–Saunders model (JFQA, 1981) to a multi-output framework, we show that the relationship between bank margins and market power varies significantly across bank specializations. In this context, European banks are a better laboratory than US banks, since they have generally enjoyed a more flexible regulatory environment in which to provide a wider range of services. Using accounting margins and New Empirical Industrial Organization margins, we find that market power increases as output becomes more diversified towards non-traditional activities in European banking.     

Market segmentation and the valuation of closed-end country funds: An empirical analysis

This article examines the role of market segmentation on the valuation of the U.S. stock exchange-listed closed-end country funds and analyzes the determinants of net fund premia in a multivariate context. It is shown that fund returns are generally sensitive to both national and U.S. market factors, but only national factors are priced. Cross-section and time series estimation of net fund premia indicates the importance of market segmentation as a determinant of net fund premia. There is some evidence that exchange rate changes may exert an additional influence. However, market expectation variables such as economic growth of the country or relative capitalization rates are insignificant.     

Financial Sector transparency and net interest margins: Should the private or public Sector lead financial Sector transparency?

This study examines the effect of private and public sector led financial sector transparency on bank interest margins across eighty-six economies. Using a two-step dynamic system generalized method of moments, least square dummy variables, fixed effects and bootstrap quantile panel models between 2005 and 2016, the findings of the two-step GMM are reported as follows. First, results reveal that financial sector transparency whether led by private or public sector reduces interest margins. Second, while no statistical evidence was found on which of the two (private or public sector led transparency) is more effective in dealing with bank interest margins, public sector-led financial transparency is found to be more consistent in reducing bank interest margins across many more economies. Third, the study shows that the effect of financial sector transparency is visible at lower and middle levels of bank interest margins implying that economies with lower and moderately high bank interest margin level can benefit more from policies targeted at improving transparency in the financial sector. These findings imply that the sampled countries must enact policies and laws that deepen and expand financial sector transparency in order to potentially reduce bank interest margins for the good of banking market participants and society at large.     

中国、德国和美国商业银行效率差异及其比较优势分析

本文基于经济学不完全竞争条件下利润最大化概念修正了利润效率模型,基于成本最小化概念从营业费用的角度修正了成本效率模型,结合财务指标分析了中国、德国和美国商业银行效率的比较优势。研究发现,德国商业银行以资源利用效率见长;美国商业银行结合混业经营和发达的金融市场创新能力强,不仅非利息业务收入水平高,而且资产流动性强、净息差水平高;中国金融市场不发达,商业银行分业经营创新能力不足,盈利能力得益于政策性利差及低风险的中间业务收入增长,大型商业银行资源利用效率低。银行创新类业务在世界金融危机中损失惨重而传统信贷业务和中间业务成为保持盈利水平的主要力量。     

Bank management of the net interest margin: new measures

We decompose the change in banks’ net interest margin into a change in market-wide bank rates and a change in balance-sheet composition. The usefulness of this decomposition is illustrated for a detailed data set of German bank balance sheets, broken down into different maturities, creditors and borrowers, and degrees of liquidity. Our main findings are as follows. (1) Changes in market-wide bank rates have a much higher explanatory power for net interest margins than changes in balance-sheet composition. (2) On average, banks employ interest rate derivatives to hedge on-balance risk since changes in market-wide rates affect the net interest margin less strongly for derivatives users than for non-users. (3) When risk taking becomes more lucrative, derivatives users tend to increase their on-balance exposure more than do non-users.