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The effect of the Fed zero-lower bound announcementon bank profitability and diversification

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  • Andrea Landi, Alex Sclip, Valeria Venturelli

Abstract

In this paper we investigate the impact of the Federal Reserve's decision to main- tain the zero-lower bound for at least two years on bank profitability and strategies. Using a difference in difference setting we find that banks with lower reliance on deposit funding are more sensitive to the policy event. Reduced net worth of low deposit banks, relative to high deposit banks, induces those banks to change their strategies toward an increase in fee income related products to maintain the tar- geted level of performance. Such an increase is mainly explained by fiduciary and insurance related revenues that entail a lower risk for financial stability.

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  • Andrea Landi, Alex Sclip, Valeria Venturelli, 2019. "The effect of the Fed zero-lower bound announcementon bank profitability and diversification," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0079, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    • Handle: RePEc:mod:wcefin:0079
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    More about this item

    Keywords

    Profitability; diversification; zero-lower bound; unconventional monetary policy; banking;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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