A1 Journal article (refereed)
Keep the faith in banking : New evidence for the effects of negative interest rates based on the case of Finnish cooperative banks (2021)

Junttila, J., Raatikainen, J., & Perttunen, J. (2021). Keep the faith in banking : New evidence for the effects of negative interest rates based on the case of Finnish cooperative banks. International Review of Financial Analysis, 75, Article 101724. https://doi.org/10.1016/j.irfa.2021.101724

JYU authors or editors

Publication details

All authors or editors: Junttila, Juha; Raatikainen, Juhani; Perttunen, Jukka

Journal or series: International Review of Financial Analysis

ISSN: 1057-5219

eISSN: 1873-8079

Publication year: 2021

Volume: 75

Article number: 101724

Publisher: Elsevier BV

Publication country: United States

Publication language: English

DOI: https://doi.org/10.1016/j.irfa.2021.101724

Publication open access: Openly available

Publication channel open access: Partially open access channel

Publication is parallel published (JYX): https://jyx.jyu.fi/handle/123456789/74952

Additional information: Available at SSRN: https://ssrn.com/abstract=3512759 or http://dx.doi.org/10.2139/ssrn.3512759

Abstract

This paper analyses the profitability of Finnish cooperative banks during the period of negative nominal interest rates. Contrary to expectations, the continuous decline in money market interest rates between 2009 and 2014, and the following negative rate era, did not have adverse effects on the profitability of banks at the beginning of negative interest rate period. Based on especially using a risk-adjusted measure for bank profitability, these results contrast with previous findings. In our findings, the increasing wholesale funding (WSF) ratio seems to be an important factor. However, after 2017 the banks have not been able to improve especially their risk-adjusted profitability so strongly anymore, because the WSF and the development of other than net interest margin returns have been in negative connection to it. In addition, the unconventional monetary policy actions seem not to improve profitability in the most recent observations of our data. These results raise serious concerns for the future of bank profitability during the prolonged period of negative interest rates.

Keywords: banks (monetary institutions); cooperative banks; profitability; profits; interest (economics); money market; monetary policy; risks

Free keywords: banks; profitability; negative interest rates; dynamic conditional correlations

Contributing organizations

Ministry reporting: Yes

Reporting Year: 2021

JUFO rating: 1