Adapting lending policies when negative interest rates hit banks’ profits
Óscar Arce (),
Miguel García-Posada (),
Sergio Mayordomo () and
Steven Ongena ()
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Óscar Arce: Banco de España
Miguel García-Posada: Banco de España
No 1832, Working Papers from Banco de España, Working Papers Homepage
What is the impact of negative interest rates on bank lending and risk-taking? To answer this question we study the changes in lending policies using both the Euro area Bank Lending Survey and the Spanish Credit Register. Banks whose net interest income is adversely affected by negative rates are concurrently lowly capitalized, take less risk and adjust loan terms and conditions to shore up their risk weighted assets and capital ratios. These banks also increase non-interest charges more. But, importantly, we find no differences in banks’ credit supply or standard setting, neither in the Euro area nor in Spain. These findings suggest that negative rates do not necessarily contract the supply of credit and that the so-called “reversal rate” may not have been reached yet.
Keywords: negative interest rates; risk taking; lending policies (search for similar items in EconPapers)
JEL-codes: G21 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-eec, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1832
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