Quantifying the Components of the Banks' Net Interest Margin

38 Pages Posted: 21 Jun 2016

See all articles by Ramona Busch

Ramona Busch

Deutsche Bundesbank

Christoph Memmel

Deutsche Bundesbank

Multiple version iconThere are 2 versions of this paper

Date Written: 2014

Abstract

Using unique data sets on German banks, we decompose their net interest margin and quantify the different components by estimating the costs of the various functions they perform. We investigate three major functions: namely, liquidity and payment management for the customers, the bearing of credit risk, and term transformation. For the year 2012, the costs of liquidity and payment management correspond, in the median, to 47%, the bearing of credit risk to 16%, and earnings from term transformation to 35% of the net interest margin, respectively. However, looking at the period 2005-2012, earnings from term transformation seem to account for a much smaller share (about 20%) of the median bank's net interest margin.

Keywords: net interest margin, credit risk, term transformation, liquidity and payment management

JEL Classification: G21

Suggested Citation

Busch, Ramona and Memmel, Christoph, Quantifying the Components of the Banks' Net Interest Margin (2014). Bundesbank Discussion Paper No. 15/2014, Available at SSRN: https://ssrn.com/abstract=2796989 or http://dx.doi.org/10.2139/ssrn.2796989

Ramona Busch (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Christoph Memmel

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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