Search Frictions, Credit Market Liquidity, and Net Interest Margin Cyclicality

Kévin Beaubrun-Diant (1) , Fabien Tripier (2, 3)

1 LEDa - Laboratoire d'Economie de Dauphine
2 CLERSÉ - Centre Lillois d’Études et de Recherches Sociologiques et Économiques - UMR 8019
3 CEPII - Centre d'Etudes Prospectives et d'Informations Internationales

The present paper contributes to the body of knowledge on search frictions in credit markets by demonstrating their ability to explain why the net interest margins of banks behave countercyclically. During periods of expansion, a fall in the net interest margin proceeds from two mechanisms: (i) lenders accept that they must finance entrepreneurs that have lower productivity and (ii) the liquidity of the credit market rises, which simplifies access to loans for entrepreneurs and thereby reinforces their threat point when bargaining the interest rate of the loan.

Mots clés: Search Friction; Matching Model; Nash Bargaining; Bank Interest Margin

Domaines: Économie et finance quantitative [q-fin]

Kévin Beaubrun-Diant, Fabien Tripier. Search Frictions, Credit Market Liquidity, and Net Interest Margin Cyclicality. Economica, 2015, 82 (325), pp.79-102. ⟨10.1111/ecca.12101⟩. ⟨hal-01515427⟩