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Why have negative nominal interest rates had such a small effect on bank performance? Cross country evidence

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  • Lopez, Jose A.
  • Rose, Andrew K.
  • Spiegel, Mark M.

Abstract

We explore the impact of negative policy rates on banks using data on 5200 banks from 27 advanced European and Asian countries, 2010–2017. Our cross-country panel specification allows us to condition on global shocks and bank-specific fixed effects. Banks offset interest income losses under negative rates with lower deposit expenses and gains in non-interest income, including fees and capital gains. Small and low deposit-ratio banks drive most results. Banks respond to negative rates by increasing lending activity and raising their share of deposit funding. Overall, our results indicate benign implications of negative rates to date for bank profitability.

Suggested Citation

  • Lopez, Jose A. & Rose, Andrew K. & Spiegel, Mark M., 2020. "Why have negative nominal interest rates had such a small effect on bank performance? Cross country evidence," European Economic Review, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:eecrev:v:124:y:2020:i:c:s0014292120300349
    DOI: 10.1016/j.euroecorev.2020.103402
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    More about this item

    Keywords

    Zero; Effective; Lower; Data; Firm; Empirical; Regression; Panel; Deposit; Size;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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