Bank Business Models at Zero Interest Rates
Tinbergen Institute Discussion Paper 16-066/IV
56 Pages Posted: 30 Aug 2016
Date Written: August 9, 2016
Abstract
We propose a novel observation-driven dynamic finite mixture model for the study of banking data.
The model accommodates time-varying component means and covariance matrices, normal and Student's t distributed mixtures, and economic determinants of time-varying parameters. Monte Carlo experiments suggest that units of interest can be classified reliably into distinct components in a variety of settings. In an empirical study of 208 European banks between 2008Q1-2015Q4, we identify six business model components and discuss how these adjust to post-crisis financial developments.
Specifically, bank business models adapt to changes in the yield curve.
Keywords: bank business models, clustering, finite mixture model, score-driven model, low interest rates
JEL Classification: C33, G21
Suggested Citation: Suggested Citation