Simple banking: profitability and the yield curve

Piergiorgio Alessandri and Benjamin Nelson

No 452, Bank of England working papers from Bank of England

Abstract: How does bank profitability vary with interest rates? We present a model of a monopolistically competitive bank subject to repricing frictions, and test the model’s predictions using a unique panel data set on UK banks. We find evidence that large banks retain a residual exposure to interest rates, even after accounting for hedging activity operating through the trading book. In the long run, both level and slope of the yield curve contribute positively to profitability. In the short run, however, increases in market rates compress interest margins, consistent with the presence of non negligible loan pricing frictions.

JEL-codes: E40 G21 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2012-06-21
New Economics Papers: this item is included in nep-ban and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... d-curve-appendix.pdf Full text (application/pdf)

Related works:
Journal Article: Simple Banking: Profitability and the Yield Curve (2015)
Working Paper: Simple banking: profitability and the yield curve (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0452

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().