Lost in Negative Territory? Search for Yield!

Mattia Girotti, Guillaume Horny and Jean-Guillaume Sahuc

Working Papers from HAL

Abstract: We study how negative interest rate policy (NIRP) affects banks' loan pricing. Using contract-level data from France, we show that NIRP affects bank lending rates to firms through a portfolio rebalancing channel: banks holding a one standard deviation more of cash and central bank reserves offer a 8.6 basis points lower loan rate after NIRP is introduced. The impact concentrates on medium-term loans (with maturity comprised between three and six years) but not on loans to risky firms, indicating that banks conduct a search for yield focused on term spreads. These findings suggest that NIRP complements quantitative easing policies.

Keywords: Negative interest rates; portfolio rebalancing; search for yield; term spreads; banks (search for similar items in EconPapers)
Date: 2022
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Working Paper: Lost in Negative Territory? Search for Yield! (2022)
Working Paper: Lost in Negative Territory? Search for Yield! (2022)
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