The figure illustrates the ratio of net interest income to total assets for banks across various countries from 2008 to 2020. The left panel represents countries that implemented negative interest rate policies (NIRP), while the right panel shows countries that maintained positive interest rates.Identify two key findings from the figure. (3 marks) Provide one possible explanation for the pattern observed in the figure. (2 marks)

Question

BlackTom AI · Accepted Answer

First, observe the left panel (negative interest rate policies, NIRP). Across the countries shown there, the ratio of net interest income to total assets stays in a relatively narrow band, mostly between about 0.8% and 1.4% from 2008 to 2020, and individual country lines move slowly without dramatic spikes. This suggests that under NIRP environments, banks’ net interest income as a share of assets remained fairly modest and fairly stable over time. A second finding in the left panel is that several European economies (for example, Denmark and the Euro area group) cluster around similar low-to-moderate levels, indicating a comparably subdued net interest income relative to assets across those economies when rates are negative.

Turning to the right panel (positive interest rate policies), a different pattern emerges. The United States line stands out as notably higher and more volatile, with the net interest income to assets ratio reaching around 2% at times and fluctuating markedly through the period, signaling larger swings in earnings capacity from interest income when policy rates were positive. In contrast, other positive-rate economies (Canada, the UK, Norway) hover at lower levels, roughly in the 0.75%–1.5% range, with some variability but generally less extreme movement than the US. This indicates greater dispersion in outcomes among positive-rate economies, and specifically higher peaks for the US.

A third, cross-panel observation is that the US tends to exhibit the highest amplitude of fluctuations in the positive-rate period, whereas European/Nordic countries show relatively more subdued movements in both panels, with the negative-rate group showing the least dramatic variation overall. These differences hint at distinct earnings dynamics across regions with different monetary regimes, asset-liability compositions, and business models.

Possible explanation for the observed pattern: When policy rates are negative or very low, banks face compressed net interest margins, which can limit the ability to generate net interest income from assets and lead to more stable, low-to-moderate ratios as asset mixes adjust and banks rely more on non-interest income or hedging to maintain earnings. Conversely, in environments with positive policy rates (as in the US), banks can earn higher net interest income from traditional lending and investment activities, creating higher and more volatile ratios as rate cycles, balance-sheet growth, and asset-liability management interact with changing monetary policy, risk premia, and demand for credit. This combination of rate regime, compensation for risk, and institutional factors (such as balance-sheet size and fee-based income opportunities) can explain why the US shows higher and more erratic NI/Assets in the positive-rate panel, while many European/Nordic economies display more muted, steadier levels, especially under NIRP.

Dashboard Midterm exam

View Explanation

Log in for full answers

Similar Questions

In a consumer society, many adults channel creativity into buying things

Economic stress and unpredictable times have resulted in a booming industry for self-help products

People born without creativity never can develop it

A product has a selling price of $20, a contribution margin ratio of 40% and fixed cost of $120,000. To make a profit of $30,000. The number of units that must be sold is: Type the number without $ and a comma. Eg: 20000

Which of the following statement regarding cost is correct:

Under the assumptions used in cost-volume-profit analysis, as the activity increases:

The CVP and break-even analysis are supported by a range of important assumptions. Which of the following is not an assumption of the CVP:

The break-even point is that at which:

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler