EconPapers    
Economics at your fingertips  
 

How Banks Respond to Negative Interest Rates: Evidence from the Swiss Exemption Threshold

Christoph Basten and Mike Mariathasan ()

No 6901, CESifo Working Paper Series from CESifo Group Munich

Abstract: We analyze the effect of negative monetary policy rates on banks, using detailed supervisory information from Switzerland. For identification, we compare changes in the behavior of banks that had different fractions of their central bank reserves exempt from negative rates. More affected banks reduce costly reserves and bond financing while maintaining non-negative deposit rates and larger deposit ratios. Higher fee and interest income successfully compensates for squeezed liability margins, but credit and interest rate risk increase. Portfolio rebalancing implies relatively more lending, also compared to an earlier rate cut within positive territory, and risk-taking reduces regulatory capital cushions and liquidity.

Keywords: monetary policy transmission; negative interest rates; bank profitability; risk-taking; bank lending; Basel III (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 G20 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-eec, nep-mac and nep-mon
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13) Track citations by RSS feed

Downloads: (external link)
https://www.cesifo-group.de/DocDL/cesifo1_wp6901.pdf (application/pdf)

Related works:
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:ces:ceswps:_6901

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Group Munich Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().

 
Page updated 2019-10-23
Handle: RePEc:ces:ceswps:_6901