Determining Factors in Shinkin Bank Loan-Deposit Interest Margins

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  • 信用金庫における預貸利鞘の決定要因

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A shinkin bank is a non-profit, cooperative financial institution, guided by the management philosophy of mutual aid. In this paper, we used data spanning a 21-year period from 1998 to 2018 to examine the determinants of loan-deposit interest margins in shinkin banks. The period in question is a period of almost consistent declines in loan-deposit interest margins. The Difference GMM (generalized method of moments) model was used in this analysis. The two main conclusions of this paper are as follows: First, during the analysis period, the decline in the expense ratio and the narrowing of the short and long term interest rate differential contributed to falling loan-deposit interest margins; within which the decline in the expense rate can be said to be the result of managerial efforts by credit unions. The narrowing in the short and long term interest rate gap was affected by the Bank of Japan's monetary easing policy during the period in question. Second, mutual aid at shinkin banks contributed to the decline in loan-deposit interest margins. This was measured by placing the retained earnings in the explanatory variable as a proxy for mutual aid. As cooperative financial institutions, shinkin banks permit lower loan-deposit interest margins because, unlike banks, retained earnings are cost-free. In other words, mutual aid is fomented between generations through the accumulation of retained earnings.

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