Abstract
This contribution provides an overview of the literature on the effect of low or negative interest rates on banks' net interest margins and profits. Most recent studies report a positive but non-linear relationship between interest rates and banks' net interest margins: the impact of low interest rates on banks' net interest margins is significantly higher than the impact of high interest rates. Likewise, most studies report that banks are not able to fully compensate lower interest margins by raising non-interest income so that their profits decline. Some recent studies report that bank-system characteristics, such as ownership and concentration, matter.
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