Abstract:
Using a sample of 7,919 banks from 30 OECD countries over 1995–2019, we examine the impact of low interest rates on banks' net interest margins. Our results confirm a positive relationship between interest rates and interest margins, which is stronger in a low interest rate environment. In more concentrated markets, however, interest margins are less sensitive to the level of interest rates as income and expense interest rate sensitivities closely match. But our results also suggest that the effect of market concentration on the link between interest rates and interest margins is weaker when interest rates approach zero.
JEL-codes: E43; E52; G21
Keywords: bank profitability; net interest margin; low interest rates; market concentration