The Interest Rate Pass-Through in German Banking Groups
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Hiltrud Nehls
Summary
The pass-through of market rates to retail interest rates is generally found to be particularly slow in Germany compared to other countries. One popular explanation is the organisation of the banking system in three strictly segregated “pillars”: savings banks, credit cooperatives and private banks, and the low competitiveness of the first two of them. In this paper we analyse the differences of the interest rate pass-through between these banking groups. We employ a dataset covering (roughly) 30 banks’ retail interest rates of four standard banking products (mortgages, consumer credit, savings accounts and time deposits). In a panel ECM we first estimate reference models of the interest pass-through for the four products. In a second step they are augmented by dummies representing the respective banking group. We find remarkable differences in the interest rate pass-through: in general it is the big banks and savings banks reacting significantly quicker to changes in the market than regional banks and credit cooperatives. Hence, in contrast to the “common knowledge” of sluggish reactions of state banks, the savings banks take full part in competition. The credit cooperatives however, smoothing their retail rates, shield their customers from interest rate change risks.
© 2006 by Lucius & Lucius, Stuttgart
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- Inhalt / Contents
- Abhandlungen / Original Papers
- Observable Depreciation Deductions and the Effective Marginal Tax Burden on Investment
- Comparing Estimation Strategies for Income Equations in the Presence of Panel Attrition
- Internationale Konjunkturverbunde / International Business Cycles
- Messprobleme bei der Ermittlung des Wachstums der Arbeitsproduktivität - dargestellt anhand eines Vergleichs der Schweiz mit den USA / Measurement Problems with Respect to Labour Productivity Growth - Illustrated by a Comparison of Switzerland with the United States
- Steuerfinanzierung von Sozialleistungen? / Tax Funding of Social Security Benefits?
- The Interest Rate Pass-Through in German Banking Groups
Articles in the same Issue
- Inhalt / Contents
- Abhandlungen / Original Papers
- Observable Depreciation Deductions and the Effective Marginal Tax Burden on Investment
- Comparing Estimation Strategies for Income Equations in the Presence of Panel Attrition
- Internationale Konjunkturverbunde / International Business Cycles
- Messprobleme bei der Ermittlung des Wachstums der Arbeitsproduktivität - dargestellt anhand eines Vergleichs der Schweiz mit den USA / Measurement Problems with Respect to Labour Productivity Growth - Illustrated by a Comparison of Switzerland with the United States
- Steuerfinanzierung von Sozialleistungen? / Tax Funding of Social Security Benefits?
- The Interest Rate Pass-Through in German Banking Groups
