Adapting lending policies in a “negative-for-long” scenario

Oscar Arce, Miguel Garcia-Posada, Sergio Mayordomo and Steven Ongena
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Oscar Arce: Banco de España

No 21-75, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: What is the long-term impact of negative interest rates on bank lending? To answer this question we construct a unique summary measure of negative rate exposure by individual banks based on exclusive survey data and banks’ balance sheets and couple it with the credit register of Spain and firms’ balance sheets to identify this impact on the supply of credit to firms. We find that only after a few years of negative rates do affected banks (relative to non-affected banks) decrease their supply and increase their rates, especially when lowly capitalized and lending to risky firms. This suggests that the adverse effects of the negative interest rates on banks’ intermediation capacity only show up after a protracted period of ultra-low rates.

Keywords: negative interest rates; risk taking; lending policies (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2021-11
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-mac
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2175

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