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What Determines the Interest Margin? An Analysis of the German Banking System
Buehn, Andreas | Karmann, Alexander | Pedrotti, Marco
Credit and Capital Markets – Kredit und Kapital, Vol. 46 (2013), Iss. 4 : pp. 467–494
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Andreas Buehn, IASS Potsdam Institute for Advanced Sustainability Studies e.V., Berliner Str. 130, 14467 Potsdam.
Alexander Karmann, Technische Universität Dresden, Faculty of Business and Economics, Chair for Economics, esp. Monetary Economics, D-01062 Dresden.
Marco Pedrotti, Universität Potsdam, August-Bebel-Straße 89, Haus 3.03, D-14482 Potsdam.
Abstract
This paper analyzes the determinants of the interest margin of German banks over the period 1995–2007, explicitly addressing differences among different bank groups. We use three empirical models to focus on the following aspects: the time evolution of the interest margin, the average differences across groups, and the presence of autoregressive effects. For each model our results show that the interest margin can be mainly explained by market power and inefficiency, the influence of which is particularly high for cooperative banks. The Winner's Curse phenomenon and the cross-subsidization strategy negatively influence the margin of private banks.