Negative interest rates, bank capital and lending behaviours

Zixuan Dai and Lei Xu

Accounting and Finance, 2025, vol. 65, issue 3, 2487-2516

Abstract: We examine the impact of negative interest rate policies (NIRP) on the link between the capital adequacy ratio (CAR) and bank lending behaviours. Through a sample from 29 Organisation for Economic Cooperation and Development (OECD) countries, we find that NIRP improves the marginal effect of CAR on bank lending. Mortgage and corporate loans can both benefit from the building up of CAR after NIRP. Nevertheless, NIRP adversely affects CAR's marginal effect on the lending behaviours of global systemically important banks (G‐SIBs). Moreover, the influence of NIRP is heterogeneous depending on bank‐specific characteristics such as size and capital level.

Date: 2025
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