The Pass-Through from Danmarks Nationalbank's Interest Rates to the Banks' Retail Interest Rates
Maria Carlsen, Economics and Charlotte Franck Fæste, Statistics
INTRODUCTION AND SUMMARY
When Danmarks Nationalbank adjusts its monetary-policy interest rates, the retail banks normally change their interest rates on loans to corpor ations and households. In this article, the extent of this pass-through, and whether it has changed during the period 1983-2006, is estimated.
The interest-rate pass-through is generally high and has increased over time. A high pass-through from the monetary-policy interest rates to the banks' interest rates reflects an effective transmission of Danmarks Nationalbank's interest-rate policy.
The extent and speed of the pass-through of a change in the monetary-policy interest rates to the banks' interest rates is dependent on several factors. For example, the greater use of products with variable interest rates will speed up the pass-through, just as the degree of competition also influences both the interest-rate pass-through and the interest-rate margin.
The banks normally change their interest rates during the same month as the monetary-policy interest rates are adjusted, alternatively in the following month. The large banks are the first to change their interest rates for the households after monetary-policy interest rates are ad justed, while the smaller banks typically follow suit during the next month.
The article first considers the development in interest rates and the interest-rate margin over time. Then the pass-through from the mon etary-policy interest rates to the banks' interest rates is estimated using a linear regression model. The model is estimated for different sub-periods, sectors and purposes. Finally, the data is analysed for groups of banks broken down by size. In conclusion, the results are compared with results from other countries.
TRANSMISSION FROM MONETARY-POLICY INTEREST RATES TO THE BANKS' INTEREST RATES
As a consequence of the fixed-exchange-rate policy, Danmarks National bank's interest rates normally follow the interest rates of the European Central Bank, ECB, for the euro area.[1] Danmarks Nationalbank's interest rates determine the short-term interest rates in the Danish money market and thus influence the price of liquidity for the banks. Changes in the monetary-policy interest rates will therefore normally entail that the banks adjust their interest rates for most customers.
Some banks change their interest rates whenever the monetary-policy interest rates are adjusted. However, many banks accumulate Danmarks Nationalbank's interest-rate adjustments, changing the interest rates for many of their products for every second interest-rate adjustment by Danmarks Nationalbank. The interest rates for certain products, such as mortgage loans, are tied directly to Danmarks Nationalbank's interest rate[2], and will therefore fluctuate in step with changes therein. In addition, certain bank products, typically business loans, are linked to money-market interest rates. Expectations of coming adjustments to the monetary-policy interest rates are normally reflected in the money-market interest rates prior to an actual adjustment, so that some banks' interest rates may change before Danmarks Nationalbank actually adjusts its interest rates. This article examines the direct pass-through from Danmarks Nationalbank's interest rates to the banks' interest rates.
Overall, the banks' average interest rates have followed Danmarks Nationalbank's interest rates relatively closely since 1983, cf. Chart 1.[3] Especially in the second half of the period there has been close correl ation between changes in the monetary-policy interest rates and in the banks' interest rates. The discount rate remained unchanged for a long period from October 1983 to March 1990, but from the start of the 1990s regained the function of signal interest rate for the general level of monetary-policy interest rates in Denmark.
DEVELOPMENT IN INTEREST RATES SINCE 1983 |
Chart 1 |
|
|
| Note: The banks' average lending rate is adjusted for earlier data breaks. The banks' interest rates are weighted averages of the interest rates for outstanding amounts with general government, non-financial corporations and households, i.e. excluding the MFI sector and other financial corporations. Danmarks Nationalbank's lending rate in the period 1983-92 is the marginal lending rate, cf. Mikkelsen (1993). Source: Danmarks Nationalbank. |
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An initial impression of the development in the banks' interest-rate margin can be gained from considering the difference between the banks' average lending and deposit rates, cf. Chart 2. The interest-rate margin has narrowed since the early 1990s, for which there can be several reasons. When interest rates are falling, and the level of interest rates is generally low, a certain downward rigidity can be seen. This is especially the case for deposit interest rates, since these cannot be negative. In addition, the emergence in recent years of mortgage loans against real estate as collateral has contributed to both lower lending rates and higher deposit rates.[4] The keener competition for bank customers may be another factor behind the narrowing of the interest-rate margin.
INTEREST-RATE MARGIN (LEFT-HAND CHART) AND INCOME FROM INTEREST AND FEES (RIGHT-HAND CHART) |
Chart 2 |
|
|
| Note: Left-hand chart: here the interest-rate margin is calculated as the difference between the banks' average lending and deposit rates based on quarterly data. The banks' average lending rate is adjusted for earlier data breaks. The banks' interest rates are weighted averages of the interest rates for general government, non-financial corporations and households, i.e. excluding the MFI sector and other financial corporations. Right-hand chart: net income from interest, net income from fees and commission as percentages of total net income from interest and fees. Due to changes in accounting rules the figures for net income from fees and com mission from 2005 are not directly comparable with previous years. Source: Danmarks Nationalbank and the Danish Bankers Association. |
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The development in the interest-rate margin must be interpreted with caution, however, since average interest rates reflect many different interest rates and do not include fees, cf. Box 1. As a consequence, competition between the banks cannot be evaluated solely on the basis of the development in the interest-rate margin. Today, the banks have spread their activities across more areas, so that the development in the interest-rate margin plays a smaller role for the banks' earnings now than was previously the case. In step with the diminishing interest-rate margin, the banks' net income from fees as a percentage of total net income from interest and fees has risen, while net income from interest has declined, cf. Chart 2.[5] Another drawback of using the interest-rate margin to illustrate the competition in the banking sector is that the banks are also exposed to competition from the capital-market based mortgage-credit system. For example, when mortgage-credit legislation was liberalised in the early 1990s, the opportunities for mortgage equity withdrawal were expanded.
AVERAGE INTEREST RATES IN DANMARKS NATIONALBANK'S INTEREST-RATE STATISTICS |
Box 1 |
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Danmarks Nationalbank's interest-rate statistics comprise the banks' interest rates compiled according to the average-interest-rate principle, and state the actual annual interest on lending and deposits in a given period.1 In 2003, Danmarks Nationalbank introduced improved interest-rate statistics with detailed breakdowns by sector and purpose categories. A distinction is made between average interest rates for outstand ing amounts and new business. The average interest rates on outstanding amounts are calculated on the basis of the reported interest income and expenses, and average balances for respectively lending and deposits.2 For new business, the effective interest rates are reported directly for each bank, after which the average for the sector is weighted in relation to the business volume of the individual banks. On compiling the interest rates, an important factor is that outstanding loans are compiled on the basis of original maturity, while new business is compiled by fixed-interest period, i.e. the period for which the interest rate is fixed. This entails that interest rates for outstanding amounts and new business are not directly comparable. There can also be considerable variation between the sub-components of a category. For example, the average interest rate for demand deposits was 2.5 per cent in December 2006, which is significantly above the interest on e.g. a salary account.3 But since only a small proportion of the total demand deposits relate to salary accounts at low interest rates, the average deposit rate is rather higher. |
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| 1 For a detailed description of Danmarks Nationalbank's interest-rate statistics see Christoffersen and Jacobsen (2003) and Persson (2005). 2 Accruals are made for the reported interest income and expenses, i.e. both booked and due interest are included. 3 Demand deposits comprise a diverse product mix of loans without fixed maturity or notice, such as salary accounts. |
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DEGREE OF PASS-THROUGH TO THE BANKS' INTEREST RATES
Below, a more detailed analysis of the pass-through from the monetary-policy interest rates to the banks' interest rates is made on the basis of a linear regression model, cf. Box 2. For the banks, the starting point is the quarterly series of the banks' average lending and deposit rates on outstanding amounts, as shown in Chart 1. As an expression of Danmarks Nationalbank's interest rate, the lending rate is used up to the 2nd quarter of 1992, and subsequently the discount rate.
METHOD |
Box 2 |
|
|
The pass-through from the monetary-policy interest rate to both the banks' average deposit and lending rates has increased over time, cf. Chart 3. The stronger pass-through in the last part of the period may be due to several factors, where especially the products offered by the banks play a role in determining the size and speed of pass-through. The greater the volume of short-term outstanding amounts and adjustable-rate loans, the faster the pass-through. The increased interest-rate pass-through may thus reflect the greater prevalence of adjustable-rate loans. Adjustable-rate deposits and lending are estimated at 60 per cent of respectively total deposits and lending at the beginning of the 1990s, and between 60 and 70 per cent in the mid-1990s, while in the period 2003-06 the average share is between 80 and 90 per cent.[6]
DEVELOPMENT IN THE PASS-THROUGH OVER TIME (BETA COEFFICIENT) |
Chart 3 |
|
|
| Note: Estimated on the basis of quarterly data. The estimate for the beta coefficient is achieved from a moving regression over time that is centred with 15 observations on each side. The monetary-policy interest rate is the right-hand variable in the regressions behind both curves. Source: Danmarks Nationalbank and own calculations. |
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In the periods after respectively 1992 and 1996 the pass-through from the monetary-policy interest rates to the banks' interest rates was generally a little higher for the discount rate than for the lending rate, cf. Table 1. This indicates that the banks are more inclined to adjust their interest rates in step with changes in the discount rate than in the lending rate. The discount rate is a signal interest rate that expresses the overall level of the monetary-policy interest rates. Changes in Danmarks Nationalbank's lending rate can occur more frequently and more grad ually than changes in the discount rate, e.g. in periods with short-lived foreign-exchange unrest, where the banks often keep retail interest rates unchanged. Since adjusting retail interest rates entails certain costs, the banks normally only change their interest rates when they expect the adjustment of the monetary-policy interest rate to be of a more permanent nature.
| PASS-THROUGH FROM DANMARKS NATIONALBANK'S INTEREST RATES TO THE BANKS' AVERAGE INTEREST RATES | Table 1 | |
|
Average change in percentage points
on a 1-per-cent change in |
||
|
Danmarks
Nationalbank's lending rate |
Danmarks Nationalbank's
discount rate |
|
| 1st quarter 1992 – 4th quarter 2006 |
Same quarter (β)
|
Same quarter (β)
|
| The banks' lending rate 1 |
0.50*
|
0.68*
|
| The banks' deposit rate |
0.53*
|
0.78*
|
| 4th quarter 1995 – 4th quarter 2006 |
|
|
| The banks' lending rate |
0.77*
|
0.85*
|
| The banks' deposit rate |
0.72*
|
0.82*
|
| Note: The method is described in Box 2. The constant is not shown, but is equal to 0 in most cases. * denotes that the coefficient is significant at the 5 per-cent level. Bold type indicates that the coefficient (at the 5 per-cent level) can well be equal to 1, i.e. the pass-through is complete. Heteroscedasticity- and autocorrelation-consistent standard deviations are applied. The banks' interest rates are weighted averages of the interest rates for general government, non-financial corporations and households, i.e. excluding the MFI sector and other financial corporations. The period from 1992 is chosen since the key principles in the current range of monetary-policy instruments were introduced in 1992. The model is estimated on the basis of quarterly data and by and large all lagged values are non-significant. Source: Danmarks Nationalbank and own calculations. 1 Adjusted for earlier data breaks. |
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In 2003, Danmarks Nationalbank introduced new monthly interest-rate statistics which make it possible to conduct a more detailed analysis of the pass-through to the banks' interest rates on a monthly basis. The results should be interpreted with some caution, however, since the period is short and the monetary-policy interest rates have been constant for most of that period. For the period after 2003, the same results are obtained for respectively Danmarks Nationalbank's lending rate and discount rate, since changes in the two interest-rate series have been virtually identical. Below, only changes in the discount rate are therefore analysed.
When the discount rate is adjusted, the banks' interest rates on outstanding amounts change in the same or the following month, cf. Table 2. Analysis of new lending yields the same results, but with greater pass-through in the same month as the monetary-policy interest rate is adjusted. It is seen that the pass-through is complete for both the deposit and lending rates on new business. The statistics for new busi ness in a given month reflect the current market conditions and may be influenced by customer and/or product structures from month to month. Outstanding amounts comprise loans that have been raised over a longer period, so that the interest rate also reflects the historical development in interest rates.
| PASS-THROUGH TO THE BANKS' AVERAGE INTEREST RATES | Table 2 | ||
|
Average change in percentage points
on a 1-per-cent change in the discount rate |
|||
| January 2003 - December 2006 |
Same
month (β) |
Month
after (β 1) |
Total
|
| Outstanding amounts |
|
|
|
| The banks' lending rate |
0.43*
|
0.33*
|
0.76
|
| The banks' deposit rate |
0.57*
|
0.35*
|
0.92
|
| New business |
|
|
|
| The banks' lending rate |
0.99*
|
0.42*
|
1.41
|
| The banks' deposit rate |
0.78*
|
0.19*
|
0.97
|
| Note: See note to Table 1. The total indicates the sum of the coefficients, i.e. the total pass-through. However, it should be noted that the total new lending is close to being significantly different from 1 (at the 5 per-cent level). Estimated on the basis of monthly data. | |||
PASS-THROUGH TO RETAIL INTEREST RATES BY SECTOR AND PURPOSE
As from the 4th quarter of 1995, the banks' interest rates can be broken down into households and corporations. The lowest pass-through from the monetary-policy interest rate is to the interest rate for deposits from households, cf. Table 3. This may be related to more rigid adjustment, in view of the low level of interest rates. The pass-through to both the lending and deposit rates for households is still relatively high, how ever.
| PASS-THROUGH TO THE BANKS' AVERAGE INTEREST RATES BY SECTOR | Table 3 |
|
Average change in percentage points
on a 1-per-cent change in the discount rate |
|
| 4th quarter 1995 – 4th quarter 2006 |
Same quarter (β)
|
| Lending rate, households |
0.82*
|
| Lending rate, corporations |
0.82*
|
| Deposit rate, households |
0.68*
|
| Deposit rate, corporations |
0.91*
|
| Note: See note to Table 1. The total is the sum of the coefficients, i.e. the total pass-through. Prior to 2002, the statistics adhere to the Danish Financial Supervisory Authority's breakdown by sector, while for the period 2002-06 they follow Statistics Denmark's breakdown. Estimated on the basis of quarterly data. | |
For corporations, there is less variation in the pass-through to respect ively the lending and deposit rates, possibly because interest rates for business loans are to a greater extent subject to negotiation of terms for both loans and deposits. In addition, competition from other sources of financing in Denmark and abroad may also contribute to higher pass-through to interest rates for corporations.
After 2003, the data can be broken down by purpose and maturity. A large proportion of lending for housing purposes has a maturity ex ceeding 5 years, and the pass-through to the interest rate on these loans is slightly more delayed than to the interest rate on loans with shorter maturities, cf. Table 4. The segment with longer maturities reflects loans at both fixed and adjustable interest rates. The pass-through is relatively rapid, which indicates that a large part of this segment comprises loans at adjustable interest rates. For interest rates on lending to corporations, the pass-through also diminishes with maturity.[7] With regard to interest rates for consumer loans and other loans, i.e. lending to households for other than housing purposes, the pass-through is not complete. On the other hand, the pass-through to the deposit interest rates is high.
| PASS-THROUGH TO THE BANKS' AVERAGE INTEREST RATES BY SECTOR, PURPOSE AND MATURITY | Table 4 | |||
|
Average change in percentage points
on a 1-per-cent change in the discount rate |
||||
| January 2003 – December 2006 |
Same month (β)
|
Month after (β 1)
|
Two
months after (β 2) |
Total
|
| Outstanding amounts |
|
|
|
|
| Lending rates |
|
|
|
|
| Households |
0.45*
|
0.39*
|
|
0.84
|
| Households, housing purposes < 1 year |
0.61*
|
0.57*
|
|
1.18
|
| Households, housing purposes > 5 years |
0.52*
|
0.39*
|
0.17*
|
1.08
|
| Households, excluding housing purposes |
0.33*
|
0.37*
|
|
0.70
|
| Corporations |
0.42*
|
0.34*
|
|
0.76
|
| Corporations < 1 year |
0.59*
|
0.27*
|
|
0.87
|
| Corporations > 5 years |
0.16
|
0.47*
|
|
0.63
|
| Deposit rates |
|
|
|
|
| Households |
0.52*
|
0.35*
|
|
0.87
|
| Corporations |
0.60*
|
0.37*
|
|
0.97
|
| New business |
|
|
|
|
| Households, housing purposes < 1 year |
0.71*
|
0.70*
|
|
1.41
|
| Note: See note to Table 1. The total is the sum of the coefficients, i.e. the total pass-through. The statistics adhere to Statistics Denmark's breakdown by sector. Estimated on the basis of monthly data. Outstanding amounts are here divided into maturities of respectively less than 1 year and over 5 years, while new business is defined by a fixed-interest period of up to 1 year. | ||||
Applying the analysis to new lending to households for housing purposes, the pass-through is high for the fixed-interest period of up to 1 year, but is not significant for other fixed-interest periods (not shown in Table 4). One explanation is that interest rates on loans with a long fixed-interest period are to a high degree dependent on other factors than changes in Danmarks Nationalbank's interest rates.
PASS-THROUGH TO RETAIL INTEREST RATES BY BANK SIZE
Average interest rates vary from bank to bank. In December 2006, most of the banks had an average lending rate in the range of 6.0-6.9 per cent, cf. Box 3. Below, the 24 banks reporting to Danmarks National bank's interest-rate statistics at end-2006 are divided into two groups.[8] Group 1 comprises the five largest banks that account for approximately 70 per cent of the total lending volume measured by outstanding loans at end-December 2006, while group 2 comprises the rest.[9]
DIFFERENCES IN LENDING RATES FOR INDIVIDUAL BANKS |
Box 3 |
The banks' interest rates vary between banks, cf. the Chart. This may be due to variations in prices for the same products, but to a high degree also to different products and customer structures, where customers' creditworthiness and also the level of collateral vary. In December 2006, there was a certain degree of variation among the banks, but the interest rates of most of the banks for both outstanding and new lending to households were in the range of 6.0-6.9 per cent per annum. |
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DISTRIBUTION OF THE BANKS' INTEREST RATES (PER CENT PER ANNUM) ON OUTSTANDING AND NEW LOANS TO HOUSEHOLDS, DECEMBER 2006 |
Chart |
 |
|
Considering first the quarterly data since 1995, the pass-through from changes in the monetary-policy interest rates to the interest rates for both households and corporations is generally high in both bank groups, cf. Table 5. Statistical tests show that the pass-through for the two groups can well be identical.
| PASS-THROUGH TO THE BANKS' INTEREST RATES BY GROUP, LONG PERIOD | Table 5 | |
|
Average change in percentage points
on a 1-per-cent change in the discount rate |
||
|
Group 1
|
Group 2
|
|
| 4th quarter 1995 – 4th quarter 2006 |
Same quarter (β)
|
Same quarter (β)
|
| Lending rate, households |
0.79*
|
0.73*
|
| Lending rate, corporations |
0.67*
|
0.65*
|
| Deposit rate, households |
0.62*
|
0.70*
|
| Deposit rate, corporations |
1.16*
|
0.84*
|
| Note: See note to Table 1. Virtually all lagged values are non-significant. Prior to 2002, the statistics adhere to the Danish Financial Supervisory Authority's breakdown by sector, while for the period 2002-06 they follow Statistics Denmark's breakdown. Estimated on the basis of quarterly data. | ||
In the period after 2003, there is a tendency for more rapid pass-through to the interest rates on lending to households from the large banks than from the smaller banks, cf. Table 6. For the large banks, a substantial part of the pass-through to the interest rates on lending to households takes place in the same month as the monetary-policy interest rate is adjusted, while for the smaller banks the interest-rate pass-through to a slightly greater extent takes place in the following month.
| PASS-THROUGH TO THE BANKS' INTEREST RATES BY GROUP, SHORT PERIOD | Table 6 | ||||||
| January 2003 – December 2006 | Average change in percentage points on a 1-per cent change in the discount rate |
||||||
Group 1 |
Group 2 |
||||||
Same month (β) |
Month after (β 1) |
Two months after (β 2) |
Total |
Same month (β) |
Month after (β 1) |
Total |
|
| Lending rate, households | 0.54* |
0.31* |
0.84 |
0.28 |
0.59* |
0.86 |
|
| Lending rate, corporations | 0.35* |
0.25* |
0.19* |
0.79 |
0.51* |
0.50* |
1.01 |
| Deposit rate, households | 0.58* |
0.31* |
0.88 |
0.36* |
0.46* |
0.83 |
|
| Deposit rate, corporations | 0.59* |
0.38* |
0.97 |
0.72* |
0.31* |
1.03 |
|
| Note: See note to Table 1. The statistics adhere to Statistics Denmark's breakdown by sector. Estimated on the basis of monthly data. | |||||||
The variation in the pass-through among the banks in terms of lending to households can be explained by such factors as differing product ranges and lending structures among the groups. The interest rate on mortgage loans is tied to the monetary-policy interest rates. Since 2003, especially the large banks have offered these new housing loan products, cf. Chart 4.
THE BANKS' OUTSTANDING LENDING TO HOUSEHOLDS BY GROUP AND PURPOSE |
Chart 4 |
|
|
| Note: The figures are for December 2003 and December 2006. Source: Danmarks Nationalbank. |
|
In terms of the pass-through to the interest rates for corporations, there is no tendency for the large banks to adjust their interest rates first. On the contrary, the pass-through seems to be a little faster for the smaller banks. One explanation may be that more of the large banks' customers are large business enterprises that are in a position to nego tiate prices.
COMPARISON WITH OTHER COUNTRIES
In recent years the interest-rate pass-through in other countries has also been subject to empirical analysis. Comparison with the results from other countries shows that the size and speed of the interest-rate pass-through is dependent on several factors and varies between countries. In January 2003, the euro area member states and Denmark introduced harmonised interest-rate statistics that facilitate cross-border comparison of retail interest rates on a larger scale than before. There are still considerable national variations, however, and only a short period is covered. Variations in financial structures and products impede direct comparison of the results for other countries with Denmark's results in this article since the empirical methods applied also vary. However, some of the key conclusions can be compared with those found in other studies.
For many countries, the pass-through from the monetary-policy inter est rates or money-market interest rates to the banks' interest rates is high in the long term, but more rigid in the short term, see e.g. De Bondt (2002) and Kwapil and Scharler (2006). Often, changes in the monetary-policy interest rates or money-market interest rates have not been fully passed through to the banks' interest rates after three months. Coffinet (2005) finds that the pass-through to retail interest rates took between one and seven months in France, while in the euro area it took between two and eight months in the period 1999-2003. The results in this article therefore indicate that the pass-through in Denmark is a little faster.
The variations between countries are confirmed by the analysis of bank interest rates in the euro area by Sørensen and Werner (2006). They state variations in national degrees of competition as one possible explan ation. Considering their product-specific results, as in this article they find greater pass-through to interest rates on mortgage loans than to interest rates on consumer loans. The same tendency is found by Baugnet and Hradisky (2004). The analyses also show that the pass-through to interest rates on loans to households is lower than the pass-through to interest rates on loans to corporations. The results in this article indicate a high pass-through to interest rates on loans to households. The reason may be that bank products for e.g. housing purchases to a larger extent bear adjustable interest rates in Denmark than in other countries.[10] The large banks in Denmark are the first to change their interest rates for households after monetary-policy interest rates are adjusted. This is corroborated by Deutsche Bundesbank (2002), which also notes the same tendency for interest rates on loans to corporations.
Overall, the results in this article indicate that the pass-through from the monetary-policy interest rates to the banks' interest rates is relative ly rapid in Denmark compared to other countries.
LITERATURE
Baugnet, V. and M. Hradisky (2004), Determinants of Belgian bank lending interest rates, Economic Review, 3rd quarter.
Danmarks Nationalbank (2003), Monetary Policy in Denmark, 2nd edition.
Danmarks Nationalbank (2006), Report and Accounts.
De Bondt, G. (2002), Retail bank interest rate pass-through: New evidence at the euro area level, ECB working paper, no. 136.
Deutsche Bundesbank (2002), The pass-through from market interest rates to bank lending rates in Germany, Monthly Report, March 2002.
Christoffersen, T. and M. Jakobsen (2003), New Interest-Rate Statistics, Danmarks Nationalbank, Monetary Review, 2nd Quarter.
Kwapil, C. and J. Scharler (2006), Limited Pass-Through from Policy to Retail Interest Rates: Empirical Evidence and Macroeconomic Implica tions, Oesterreichische Nationalbank, Monetary Policy and the Economy, 4th quarter.
Mikkelsen, R. (1993), Danish Monetary History 1960-1990 (in Danish), Danmarks Nationalbank.
Olsen, M. and M. Linnemann Bech (1998), Earnings of Danish Banks, Danmarks Nationalbank, Monetary Review, 2nd Quarter.
Persson, S. (2005), Retail Interest Rates in Denmark and the Euro Area, Danmarks Nationalbank, Monetary Review, 4th Quarter
Sørensen C. K. and T. Werner (2006), Bank interest rate pass-through in the euro area. A cross country comparison, ECB working paper, no. 580.
[1] Denmark has conducted a fixed-exchange-rate policy since the start of the 1980s. See Danmarks Nationalbank (2003) and Danmarks Nationalbank (2006) for further details of monetary policy in Denmark.
[2] The interest rate on mortgage loans is pegged to the rate of interest on Danmarks Nationalbank's certificates of deposit (which is equivalent to Danmarks Nationalbank's lending rate).
[3] The literature has often discussed whether the banks change their lending rates more when the monetary-policy interest rates are raised than when they are lowered. This potential asymmetry is not studied directly in this article, but the fact that both the banks' lending and deposit rates have followed Danmarks Nationalbank's interest rates over time limits any possible asymmetry.
[4] Since 2003 several banks have introduced mortgage loans. The mortgage loans vary among the banks, but generally adhere to the same basic concept whereby the loan is either an overdraft facility or an ordinary housing loan at an adjustable interest rate, with a long maturity, granted against real estate as collateral. When the banks issue a loan against real estate as collateral, a deposit account for the nominal value of the loan is often established at the same time. As the proceeds from the loan are disbursed, the deposit is reduced accordingly. The interest terms of the loan and deposit accounts are typically identical.
[5] It should be noted that income from fees reflects considerable variation in types of fees, from debit and credit card transactions to securities brokerage commission. As from 2005 the new accounting rules divide e.g. fees into categories. In 2005, securities brokerage commission and custodian account fees comprised approximately 39 per cent of the total income from fees and commission.
[6] The estimate for the 1990s is based on outstanding amounts where it is assumed that adjustable-rate loans have an original term to maturity of up to one year. As there can be adjustable-rate loans in all maturity segments under outstanding amounts, the share is probably slightly underestimated. The data for the 1990s is from the Danish Financial Supervisory Authority. After 2003, new business can be compiled on the basis of fixed-interest periods that better reflect the volume of adjustable-rate loans. The estimate for the period 2003-06 is therefore based on data for new business with a fixed-interest period of up to one year.
[7] The two β coefficients for interest rates on lending to corporations with maturities of respectively less than 1 year and over 5 years are shown by statistical tests not to be identical.
[8] Grouping is according to the Danish Financial Supervisory Authority's groups based on working capital.
[9] To obtain a consistent quarterly series for the period back to the 4th quarter of 1995, a few banks are excluded from the groups, however.
[10] It should be noted that in Denmark most lending against owner-occupied housing as collateral is provided via the mortgage-credit market, while in other countries it is provided via the banks. This entails that fixed-rate loans are to a great extent offered by the mortgage-credit sector in Denmark, but in other countries by the banking sector.
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