The Swedish Mortgage Margin. Do the commercial banks hinder the Riksbank from reaching their full intended effects?

Abstract

This paper examines whether the short term mortgage rate set by the commercial banks changes at the same pace as the nominal interest rate. This is done by empirically analyzing data from the four largest commercial banks in Sweden between the years 1997 and 2015. It also includes other determinants that are of importance when examining the mortgage margin. For the tested time period, the reported findings show that the mortgage margin has increased as the nominal rate has been decreasing. This paper argues that the four largest commercial banks in Sweden have such a high market power, making it possible for them to use the changes in the nominal interest rate to both strengthen their capital structure, as well as, paying high dividends to their owners. This indicates a monopolistic structure. The nominal rate could therefore be hindered to reach its full intended effect.