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Title:Determinants of the interest rate pass-through of banks: Evidence from German loan products PDF Logo
Authors:Schlüter, Tobias
Busch, Ramona
Hartmann-Wendels, Thomas
Sievers, Sönke
Issue Date:2012
Series/Report no.:Discussion Paper, Deutsche Bundesbank 26/2012
Abstract:This article examines the loan rate-setting behavior of German banks for a large variety of retail and corporate loan products. We find that a bank's operational efficiency is priced in bank loan rates and alters interest-setting behavior. Specifically, we establish that a higher degree of operational efficiency leads to lower loan markups, which involve more competitive prices, and smoothed interest rate-setting. This study contributes to prior literature that has been suggesting this relationship but has produced mixed findings. For the German market this relationship is unexplored. By employing stochastic frontier analysis to comprehensively capture cost efficiency, we take the bank customers' perspective and demonstrate the extent to which borrowers benefit from cost efficient banking.
Subjects:interest rate pass-through models
error correction models
bank efficiency
cost efficiency
stochastic frontier analysis
JEL:G21
G28
ISBN:978-3-86558-852-4
Document Type:Working Paper
Appears in Collections:Discussion Papers, Deutsche Bundesbank

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