Do Net Interest Margins for Small and Large Banks Vary Differently with Interest Rates?

Sengupta, Rajdeep; Xue, Fei

doi:10.18651/ER/v107n1SenguptaXue

Journal Article

Do Net Interest Margins for Small and Large Banks Vary Differently with Interest Rates?

Abstract: Rajdeep Sengupta and Fei Xue examine the relative contributions of activities that compose bank NIMs as well as their sensitivities to interest rates. They find that the recent decline in bank NIMs was largely driven by changes in interest rates rather than changes in the composition of NIM components in bank portfolios. After controlling for financial and economic conditions that also affect bank NIMs, they find that NIM contributions from loans and deposits are highly sensitive to interest rates. However, these sensitivities are not always symmetric between large and small banks and between increases and decreases in interest rates. Although lowering interest rates may be relatively disadvantageous for small banks by lowering NIMs, raising interest rates is not necessarily advantageous for them.

Keywords: net interest margins; Interest rates;

JEL Classification: G21;

https://doi.org/10.18651/ER/v107n1SenguptaXue