Bank Business Models at Zero Interest Rates

Lucas, André; Schaumburg, Julia; Schwaab, Bernd

doi:10.2139/ssrn.2831922

Cited by 16 publications

(24 citation statements)

References 31 publications

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“…Moreover, we highlight the compensatory effect played by fees and commissions to contrast the net-interest margin compression induced by the negative interest rate policy. Finally, unlike Lucas et al (2019), we do find an overall increase of deposits across the business models, thereby suggesting that Italian banks pursued a stabilizing funding policy, to the benefit of systemic financial stability.…”

Section: Literature Reviewmentioning

confidence: 52%

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Bank business models, negative policy rates, and prudential regulation

Savona

2021

Ann Finance

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Using data from Italian banks over the period 2011–2017, we study how negative interest rate policy and prudential regulation impact on bank business models. We report four key findings. First, banks shifted into retail- and market-oriented business models. Second, high- and low-deposit banks reduced loans and increased security/liquid assets; only market-oriented banks expanded lending. Third, interest rate income compression induced by negative rates has been substantial for the Italian banking system as a whole, although retail banks seem to have suffered less. Fourth, non-interest incomes played a compensatory effect. The portfolio reshuffling, as we observed for wholesale and retail banks (less lending and more securities/liquid assets), is related to the goal of reducing risk exposures and, in turn, the connected capital absorption required by prudential regulation.

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Section: Literature Reviewmentioning

confidence: 52%

“…To identify bank business models, existing approaches commonly use cluster analysis based on single (static) cross-sections of year-end data (e.g.,Roengpitya et al 2014;Ayadi et al 2011;Ayadi and De Groen 2014), also extended to panel framework, thereby pooling information over time(Lucas et al 2019). …”

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confidence: 99%

Bank business models, negative policy rates, and prudential regulation

Savona

2021

Ann Finance

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“…By contrast, focused retail banks did relatively well in the global financial crisis, but performed very badly in more recent years. Lucas et al (2016) also apply cluster analysis over the entire post-2007 period and identify six business models. The main focus of their analysis is how different types of banks deal with low interest rates.…”

Section: Bank Performance and Bank Characteristics: Recent Literaturementioning

confidence: 99%

“…We apply factor analysis to 15 bank characteristics that have also been used in previous business model studies (e.g. Altunbas et al, 2011;Ayadi and De Groen, 2014;Lucas et al, 2016):…”

Section: Identification Of Bank Business Modelsmentioning

confidence: 99%

European banks after the global financial crisis: peak accumulated losses, twin crises and business models

Haan

Kakes

2019

J Bank Regul

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This paper takes stock of European banks' accumulated losses since 2007 and relates these to bank characteristics. In line with previous studies, we find that large, market-oriented banks were particularly hit by the 2007-2009 global financial crisis whereas smaller, retail-oriented banks weathered these years relatively well. In subsequent years, however, the picture reversed and retail-oriented banks were most affected. Over the entire period, medium-sized banks suffered most losses and often needed state aid. This suggests that measures to contain systemic risk, such as capital surcharges and bail-in requirements, are as relevant for these institutions as they are for the largest banks.

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“…This method is based on the Generalized Autoregressive Score (GAS) framework of Creal et al (2013) and Harvey (2013). Dynamic models with score-driven parameters have been successfully employed in economic and financial studies, see for instance Lucas et al (2017), Blasques et al (2016b), and Harvey and Luati (2014).…”

Section: Introductionmentioning

confidence: 99%

DSGE Models with Observation-Driven Time-Varying Parameters

Angelini

Gorgi

2017

SSRN Journal

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This paper proposes a novel approach to introduce time-variation in structural parameters of DSGE models. Structural parameters are allowed to evolve over time via an observation-driven updating equation. The estimation of the resulting DSGE model can be easily performed by maximum likelihood without the need of time-consuming simulation-based methods. An application to a DSGE model with time varying volatility for structural shocks is presented. The results indicate a significant improvement in forecasting performance.

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Bank Business Models at Zero Interest Rates

Abstract: We propose a novel observation-driven dynamic finite mixture model for the study of Specifically, bank business models adapt to changes in the yield curve.

Cited by 16 publications

References 31 publications

Bank business models, negative policy rates, and prudential regulation

Bank business models, negative policy rates, and prudential regulation

European banks after the global financial crisis: peak accumulated losses, twin crises and business models

DSGE Models with Observation-Driven Time-Varying Parameters

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