Negative interest rates: incentive or hindrance for the banking system?

Christophe Blot () and Paul Hubert ()
Additional contact information
Christophe Blot: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po
Paul Hubert: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po

SciencePo Working papers Main from HAL

Abstract: Since 2014, the ECB has applied a negative interest rate on the excess reserves (and deposit facilities) of commercial banks. This policy is complementary to Quantitative Easing (QE), a program whereby the ECB purchases securities on financial markets. Indeed, the QE provides liquidity to the banks and negative interest rates encourage them to reallocate this liquidity. The negative reserve rate amplifies the fall in short-term and long-term market rates and reinforces the incentive for commercial banks to operate reallocation on their portfolios towards riskier assets. The total amount of liquidity subject to a negative interest rate is 1047 billion euros. Negative interest rates should reduce interest rate margins but the impact on profitability is mitigated by the capital gains banks realise when selling securities to the ECB under QE, by the possibility banks have to finance themselves at negative rates, by a decrease in the risk of default and by the possibility to raise non-interest income.

Date: 2016-11
Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-03459162
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in [Research Report] Parlement européen. 2016

Downloads: (external link)
https://hal-sciencespo.archives-ouvertes.fr/hal-03459162/document (application/pdf)

Related works:
Working Paper: Negative interest rates: incentive or hindrance for the banking system? (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:spmain:hal-03459162

Access Statistics for this paper

More papers in SciencePo Working papers Main from HAL
Bibliographic data for series maintained by Contact - Sciences Po Departement of Economics ().