Research question
How do prudential interventions change bank interest margins?
Net interest margins (NIMs) are both a core bank-profitability indicator and a measure of the cost of financial intermediation. The paper studies whether macroprudential policy changes alter NIMs, their income and funding-cost components, and the time profile of the response.
Tightening macroprudential policy lowers bank net interest margins, with effects that differ across time and instruments.
On average, tightening is associated with a 2 basis point decline in NIMs in the implementation year.
Income and funding-cost components initially rise, then both decline one to two years later.
Instrument type, bank capitalization, and credit risk shape the observed response.
Transmission channel
Margins reflect a changing balance between income and funding costs.
The paper decomposes NIM into interest income to earning assets (IIEA) and interest expense to earning assets (IEEA), revealing why a headline margin response can change direction over time.
Macroprudential tightening
A narrative policy index captures changes in the overall stance and in five types of national instruments.
Interest income and expense
Immediately, IIEA rises by 7 bp and IEEA by almost 10 bp. One to two years later, both decline, with the income component especially important.
Net interest margin
Higher funding costs drive the immediate contraction; later adjustments determine changes in the NIM level and its variation.
Empirical design
A dynamic, bank-level view of policy transmission.
The analysis combines bank financial data with the ECB’s MaPPED policy database and estimates fixed-effects specifications with bank-clustered standard errors, separating policy-year, one-year, and two-year responses.
Outcomes
NIM level, one- and two-year NIM changes, and their IIEA and IEEA components.
Policy measure
An index of tightening and loosening actions, alongside separate instrument categories.
Bank conditions
Capital adequacy, lending orientation, loan-loss provisions, and non-performing loans capture risk and balance-sheet differences.
Context
Bank, industry, and macroeconomic controls; high/low-rate environments and pre/post-crisis checks.
Main evidence
Policy tightening compresses margins, but its timing matters.
The results distinguish a short-run cost channel from medium-term adjustments in both income and funding costs.
Immediate NIM response
Tightening is associated with a 2 basis point reduction in NIMs at implementation, driven primarily by higher interest expense to earning assets.
Income after two years
Interest income to earning assets declines by 10.5 basis points one to two years after a policy change.
Funding cost after two years
Interest expense to earning assets also declines, by 10.1 basis points, as the medium-term adjustment unfolds.
Effect sizes summarize the published abstract and baseline results. They describe associations estimated within the study’s empirical design.
Instrument mix
The choice of tool matters for timing and channel.
Rather than treating all macroprudential actions as interchangeable, the paper studies five policy groups with distinct immediate and medium-term relationships to NIMs.
Lending standards
Reduce NIMs immediately, largely through higher funding costs.
Taxes and levies
Show positive NIM-level responses in the implementation year and after two years.
Credit growth limits
Increase NIMs in the medium term through the income component.
Liquidity & currency rules
Reduce NIMs in the medium term, especially through lower interest income.
Loan-loss provisioning
Reduces NIM in the policy year and affects the dynamics of margin variation.
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