Publication detail

Bank Efficiency and Interest Rate Pass-Through: Evidence from Czech Loan Products

Author(s): doc. PhDr. Tomáš Havránek Ph.D.,
doc. PhDr. Zuzana Havránková Ph.D.,
PhDr. Jitka Lešanovská ,
Type: IES Working Papers
Year: 2015
Number: 24
ISSN / ISBN:
Published in: IES Working Papers 24/2015
Publishing place: Prague
Keywords: Monetary transmission, cost efficiency, bank pricing policies, stochastic frontier analysis, data envelopment analysis
JEL codes: E43, E58, G21
Suggested Citation: Havranek T., Irsova Z., Lesanovska J. (2015). “Bank Efficiency and Interest Rate Pass-Through: Evidence from Czech Loan Products ” IES Working Paper 24/2015. IES FSV. Charles University.
Grants: DO FOREIGN PARENT BANKS INFLUENCE EFFICIENCY OF THEIR SUBSIDIARIES IN CEE? DYME – Dynamic Models in Economics
Abstract: An important component of monetary policy transmission is the pass-through from financial market interest rates, directly influenced or targeted by central banks, to the rates that banks charge firms and households. Yet the available evidence on the strength and speed of the pass-through is mixed and varies across countries, time periods, and even individual banks. We examine the pass-through mechanism using a unique data set of Czech loan and deposit products and focus on bank-level determinants of pricing policies, especially cost efficiency, which we estimate employing both stochastic frontier and data envelopment analysis. Our main results are threefold: First, the long-term pass-through was close to complete for most products before the financial crisis, but has weakened considerably afterward. Second, banks that provide high rates for deposits usually charge high loan markups. Third, cost-efficient banks tend to delay responses to changes in the market rate, smoothing loan rates for their clients.
Downloadable: wp_2015_24_havranek_irsova_lesanovska

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