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Article: On the determinants of bank interest margins under credit and interest rate risks

TitleOn the determinants of bank interest margins under credit and interest rate risks
Authors
KeywordsBank interest margins
Credit risk
Interest rate risk
Risk aversion
Issue Date1997
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jbf
Citation
Journal Of Banking And Finance, 1997, v. 21 n. 2, p. 251-271 How to Cite?
AbstractThis paper explores the determinants of optimal bank interest margins based on a simple firm-theoretical model under multiple sources of uncertainty and risk aversion. The model demonstrates how cost, regulation, credit risk and interest rate risk conditions jointly determine the optimal bank interest margin decision. We find that the bank interest margin is positively related to the bank's market power, to the operating costs, to the degree of credit risk, and to the degree of interest rate risk. An increase in the bank's equity capital has a negative effect on the spread when the bank faces little interest rate risk. The effect of rising interbank market rate on the spread is ambiguous and depends on the net position of the bank in the interbank market. Our findings provide alternative explanations for the empirical evidence concerning bank spread behavior.
Persistent Identifierhttp://hdl.handle.net/10722/85737
ISSN
2015 Impact Factor: 1.485
2015 SCImago Journal Rankings: 1.264
References

 

DC FieldValueLanguage
dc.contributor.authorWong, KPen_HK
dc.date.accessioned2010-09-06T09:08:35Z-
dc.date.available2010-09-06T09:08:35Z-
dc.date.issued1997en_HK
dc.identifier.citationJournal Of Banking And Finance, 1997, v. 21 n. 2, p. 251-271en_HK
dc.identifier.issn0378-4266en_HK
dc.identifier.urihttp://hdl.handle.net/10722/85737-
dc.description.abstractThis paper explores the determinants of optimal bank interest margins based on a simple firm-theoretical model under multiple sources of uncertainty and risk aversion. The model demonstrates how cost, regulation, credit risk and interest rate risk conditions jointly determine the optimal bank interest margin decision. We find that the bank interest margin is positively related to the bank's market power, to the operating costs, to the degree of credit risk, and to the degree of interest rate risk. An increase in the bank's equity capital has a negative effect on the spread when the bank faces little interest rate risk. The effect of rising interbank market rate on the spread is ambiguous and depends on the net position of the bank in the interbank market. Our findings provide alternative explanations for the empirical evidence concerning bank spread behavior.en_HK
dc.languageengen_HK
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jbfen_HK
dc.relation.ispartofJournal of Banking and Financeen_HK
dc.rightsJournal of Banking & Finance. Copyright © Elsevier BV.en_HK
dc.subjectBank interest marginsen_HK
dc.subjectCredit risken_HK
dc.subjectInterest rate risken_HK
dc.subjectRisk aversionen_HK
dc.titleOn the determinants of bank interest margins under credit and interest rate risksen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0378-4266&volume=21&spage=251&epage=271&date=1997&atitle=On+the+Determinants+of+Bank+Interest+Margins+under+Credit+and+Interest+Rate+Risksen_HK
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hken_HK
dc.identifier.authorityWong, KP=rp01112en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doiOn the determinants of bank interest margins under-
dc.identifier.scopuseid_2-s2.0-0031068511en_HK
dc.identifier.hkuros26044en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-0031068511&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume21en_HK
dc.identifier.issue2en_HK
dc.identifier.spage251en_HK
dc.identifier.epage271en_HK
dc.publisher.placeNetherlandsen_HK
dc.identifier.scopusauthoridWong, KP=7404759417en_HK

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