A comparative analysis of the US and EU retail banking markets - Wsbi

5.3.2 Efficiency of credit institutions
5.3.2.1 United States
5.3.2.1.1 Net interest margins
Figures in table 12 on the following page which
show the evolution of net interest margins in the US
between 1992 and 2003 reveal that interest margins
of credit institutions in the US have decreased to a
degree, whether looking at aggregate data for the
whole industry or at data by type of credit institution.
The decrease in net interest margin is commonly
explained by two main factors: increased competition
in the sector, which reduces the banks’ margins both
on the asset side and on the liability side, and the
downward trend as regards interest rates during the
considered period. In particular, in the environment
of low interest rates experienced during the years
2001 – 2003, banks seem to have been reluctant
to reduce their rates on some of their funding
instruments, such as core deposits, in the same
proportion as the decrease in interest rate. This has
in turn affected their margins.
5.3.2.1.2 Return on equity
Table 13 below shows that aggregate ROE for all
types of US credit institutions for the period 1994-
2003 has remained relatively stable given that it
amounted to 19.2% in 1994 and 20.7% in 2003.
The trend has however been different for the
different types of institutions: whereas the ROE has
remained relatively stable for commercial banks, it
has experienced an upward trend in the case of
savings institutions and a decrease in the case of
credit unions.
There are also marked differences between categories
of institutions in relation to their level of ROE.
This contrasts with the situation as regards interest
margins, where the levels were pretty similar for the
different types of institutions. More concretely, while
the average ROE of commercial banks and savings
institutions is high, amounting to around 20%,
the average ROE of credit unions lies at a much
lower level, having been consistently lower than
10% since 1996.
It should be noted here that despite the decrease
observed between 1992 and 2003, the net interest
margin of US banks remains quite high as compared
to international standards.
Table 12: Evolution of net interest margins in the US, 1992-2003
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Commercial banks 3.89% 3.89% 3.78% 3.71% 3.70% 3.64% 3.51% 3.50% 3.40% 3.35% 3.50% 3.27%
Savings institutions 3.13% 3.26% 3.12% 2.89% 3.01% 3.03% 2.89% 2.88% 2.74% 2.94% 3.05% 2.97%
Credit unions (CU) n.a. n.a. n.a. n.a. 3.96% 3.98% 3.82% 3.73% 3.77% 3.59% 3.63% 3.42%
Total excl. CU 3.72% 3.76% 3.65% 3.55% 3.58% 3.54% 3.41% 3.40% 3.30% 3.28% 3.43% 3.22%
US Average n.a. n.a. n.a. n.a. 15.37% 15.02% 12.73% 12.41% 10.99% 10.47% 9.42% 9.22%
Sources: ESBG calculations based on FDIC and NCUA data.
Table 13: Evolution of the Return on Equity (before taxes) in the US, 1992-2003
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Commercial banks 17.6% 21.2% 21.5% 21.4% 21.4% 21.8% 20.3% 23.1% 20.5% 18.6% 20.6% 21.9%
Savings institutions 14.1% 13.6% 12.7% 13.7% 11.7% 15.3% 16.3% 17.9% 16.0% 18.2% 18.1% 19.9%
Credit unions (CU) n.a. n.a. 12.4% 10.7% 10.0% 9.0% 8.3% 8.3% 8.6% 8.2% 9.4% 8.8%
Total excl. CU 16.8% 19.6% 19.7% 19.9% 19.6% 20.6% 19.6% 22.3% 19.8% 18.5% 20.2% 21.6%
US Average n.a. n.a. 19.2% 19.3% 18.9% 19.8% 18.8% 21.2% 18.9% 17.8% 19.4% 20.7%
Sources: ESBG calculations based on FDIC and NCUA data.
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