Life below zero: Bank lending under negative policy rates
Farzad Saidi and
No 13191, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We show that negative policy rates affect the supply of bank credit in a novel way. Banks are reluctant to pass on negative rates to depositors, which increases the funding cost of high-deposit banks, and reduces their net worth, relative to low-deposit banks. As a consequence, the introduction of negative policy rates by the European Central Bank in mid-2014 leads to more risk taking and less lending by euro-area banks with greater reliance on deposit funding. Our results suggest that negative rates are less accommodative, and could pose a risk to financial stability, if lending is done by high-deposit banks.
Keywords: bank balance-sheet channel; bank risk-taking channel; deposits; Negative Interest Rates; zero lower bound (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 G20 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-eec and nep-mac
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Journal Article: Life below Zero: Bank Lending under Negative Policy Rates (2019)
Working Paper: Life below zero: bank lending under negative policy rates (2018)
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