Negative interest rates, deposit funding and bank lending

Tan Schelling and Pascal Towbin

No 2020-05, Working Papers from Swiss National Bank

Abstract: In a negative interest rate environment, banks have generally proved reluctant to pass on negative interest rates to their retail depositors. Thus, banks that are more dependent on deposit funding face higher funding costs relative to other banks. This raises questions about the effect of negative interest rates on bank lending and monetary policy transmission. To study the transmission of negative interest rates, we use an unexpected policy decision by the Swiss National Bank in combination with a comprehensive and granular micro data set on individual Swiss corporate loans. We find that banks relying more heavily on deposit funding take more risks and offer looser lending terms than other banks. This result is consistent with the risk-taking channel, where a lower policy rate spurs bank risk-taking to maintain profits.

Keywords: Negative interest rates; bank lending; deposit funding; monetary transmission (search for similar items in EconPapers)
JEL-codes: E58 G21 G28 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2020
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-gen and nep-mac
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2020-05

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