Title

The chicken or the egg? The trade-off between bank non interest income and net interest margins

Date of this Version

1-1-2009

Document Type

Conference Paper

Publication Details

Published Version.

Williams, B. & Rajaguru, G. (2009). The chicken or the egg? The trade-off between bank non interest income and net interest margins. Paper presented at the Campus for finance research conference 2009, Germany.

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© Copyright Barry Williams & Gulasekaran Rajaguru, 2009

Abstract

This study considers the time series relationship between bank non interest income and bank net interest margins in Australia using panel vector autoregressions. It is found that increases in bank non interest income are being used to supplement decreases in net interest margins, but that the magnitude of the increase in non interest income is smaller than the decrease in net interest margins. It is also found that increases in non interest income predate declines in margin income, suggesting that Australian banks were pro-active in the process of disintermediation. The agency risks of increased bank non interest income are explored from the perspectives of regulators, consumers, bank shareholders, borrowers and bank management.