Why Have Negative Nominal Interest Rates Had Such a Small Effect on Bank Performance? Cross Country Evidence

Jose Lopez, Andrew Rose and Mark Spiegel

No 25004, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the effect of negative nominal interest rates on bank profitability and behavior using a cross-country panel of over 5,100 banks in 27 countries. Our data set includes annual observations for Japanese and European banks between 2010 and 2016, which covers all advanced economies that have experienced negative nominal rates, including currency union members as well as both fixed and floating exchange rates countries. When we compare negative nominal interest rates with low positive rates, banks experience losses in interest income that are almost exactly offset by savings on deposit expenses and gains in non-interest income, including capital gains on securities and fees. We find heterogeneous effects of negative rates: banks from regimes with floating exchange rates, small banks, and banks with low deposit ratios drive most of our results. Low-deposit banks have enjoyed particularly striking gains in non-interest income, likely from capital gains on securities. There have only been modest differences between high and low deposit-ratio banks’ changes in interest expenses; high deposit banks do not seem disproportionately vulnerable to negative rates. Banks also responded to negative rates by increasing lending activity, and raising the share of deposit funding. Overall, our results indicate surprisingly benign implications of negative rates for commercial banks thus far.

JEL-codes: E43 G21 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
Note: IFM ME
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Citations: View citations in EconPapers (40)

Published as Jose A. Lopez & Andrew K. Rose & Mark M. Spiegel, 2020. "Why Have Negative Nominal Interest Rates Had Such a Small Effect on Bank Performance? Cross Country Evidence," European Economic Review, .

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Journal Article: Why have negative nominal interest rates had such a small effect on bank performance? Cross country evidence (2020)
Working Paper: Why Have Negative Nominal Interest Rates Had Such a Small Effect on Bank Performance? Cross Country Evidence (2018)
Working Paper: Why Have Negative Nominal Interest Rates Had Such a Small Effect on Bank Performance? Cross Country Evidence (2018)
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