Arbeitspapier
How Do Banks' Funding Costs Affect Interest Margins?
We use a dynamic factor model and a detailed panel data set with quarterly accounts data on all Norwegian banks to study the effects of banks' funding costs on their retail rates. Banks' funds are categorized into two groups: customer deposits and long-term wholesale funding (market funding from private and institutional investors including other banks). The cost of market funding is represented in the model by the three-month Norwegian Inter Bank Offered Rate (NIBOR) and the spread of unsecured senior bonds issued by Norwegian banks. Our estimates show clear evidence of incomplete pass-through: a unit increase in NIBOR leads to an approximately 0.8 increase in bank rates. On the other hand, the difference between banks' loan and deposit rates is independent of NIBOR. Our findings are consistent with the view that banks face a downward-sloping demand curve for loans and an upward-sloping supply curve for customer deposits.
- ISBN
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978-82-7553-614-1
- Language
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Englisch
- Bibliographic citation
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Series: Working Paper ; No. 2011/09
- Classification
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Wirtschaft
Interest Rates: Determination, Term Structure, and Effects
Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications
Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models
- Subject
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NIBOR
norwegian inter bank offered rate
interest rates
pass-through
funding costs
bank panel data
dynamic factor model
- Event
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Geistige Schöpfung
- (who)
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Raknerud, Arvid
Vatne, Bjørn Helge
Rakkestad, Ketil Johan
- Event
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Veröffentlichung
- (who)
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Norges Bank
- (where)
-
Oslo
- (when)
-
2011
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Raknerud, Arvid
- Vatne, Bjørn Helge
- Rakkestad, Ketil Johan
- Norges Bank
Time of origin
- 2011
Other Objects (12)
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The Pension Reform in Norway - a Useful Step, but More Funding Could be Beneficial
When Does an Interest Rate Path "Look Good"? Criteria for an Appropriate Future Interest Rate Path - a Practician's Approach
The Relation Between Banks' Funding Costs, Retail Rates and Loan Volumes: An Analysis of Norwegian Bank Micro Data
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Long-Term Market Outlook
Effects of Higher Equity Ratio on a Bank's Total Funding Costs and Lending
Banks' wholesale funding share as an indicator of financial vulnerability
The Golden Interest Rule: Robust Simple Interest Rate Rules for the Norwegian Economy
The Neutral Real Interest Rate
When Does an Interest Rate Path "Look Good"? Criteria for an Appropriate Future Interest Rate Path
Covered Interest Parity in long-dated securities
Commodity Prices, Interest Rates and the Dollar
The Pension Reform in Norway - a Useful Step, but More Funding Could be Beneficial
When Does an Interest Rate Path "Look Good"? Criteria for an Appropriate Future Interest Rate Path - a Practician's Approach
The Relation Between Banks' Funding Costs, Retail Rates and Loan Volumes: An Analysis of Norwegian Bank Micro Data
Geldschein, 500 Kroner, 1901
Long-Term Market Outlook
Effects of Higher Equity Ratio on a Bank's Total Funding Costs and Lending
Banks' wholesale funding share as an indicator of financial vulnerability
The Golden Interest Rule: Robust Simple Interest Rate Rules for the Norwegian Economy
The Neutral Real Interest Rate
When Does an Interest Rate Path "Look Good"? Criteria for an Appropriate Future Interest Rate Path
Covered Interest Parity in long-dated securities
Commodity Prices, Interest Rates and the Dollar
The Pension Reform in Norway - a Useful Step, but More Funding Could be Beneficial
When Does an Interest Rate Path "Look Good"? Criteria for an Appropriate Future Interest Rate Path - a Practician's Approach
The Relation Between Banks' Funding Costs, Retail Rates and Loan Volumes: An Analysis of Norwegian Bank Micro Data
Geldschein, 500 Kroner, 1901