Life below zero: bank lending under negative policy rates
Farzad Saidi and
No 2173, Working Paper Series from European Central Bank
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. JEL Classification: E44, E52, E58, G20, G21
Keywords: bank balance-sheet channel; bank risk-taking channel; deposits; negative interest rates; zero lower bound (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20182173
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