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Negative rates, monetary policy transmission and cross-border lending via international financial centers

Author

Listed:
  • Andreeva, Desislava
  • Coman, Andra
  • Everett, Mary
  • Froemel, Maren
  • Ho, Kelvin
  • Lloyd, Simon
  • Meunier, Baptiste
  • Pedrono, Justine
  • Reinhardt, Dennis
  • Wong, Andrew
  • Wong, Eric
  • Żochowski, Dawid

Abstract

We study the effects of negative interest rate policies (NIRP) on the transmission of monetary policy through cross-border lending. Using bank-level data from international financial centers (IFCs) – the United Kingdom and Hong Kong, as well as Ireland – we examine how NIRP in the economies where banks have their headquarters influences cross-border lending from financial-center affiliates. Outside of NIRP periods, tighter monetary policy in affiliates’ headquarter country is associated with a reduction in cross-border lending from the UK and Hong Kong to non-bank borrowers abroad. In contrast, we find evidence that NIRP impairs the bank-lending channel for cross-border lending to non-bank sectors from the UK and Hong Kong, especially for those banks that have only a weak deposit base in these IFCs – and are thus relatively more exposed to NIRP in their headquarters. Consistent with these IFC findings, using euro-area data that includes bank-level information for France, we find that NIRP also impairs headquarter-banks’ lending to bank borrowers in IFCs, which include their IFC affiliates.

Suggested Citation

  • Andreeva, Desislava & Coman, Andra & Everett, Mary & Froemel, Maren & Ho, Kelvin & Lloyd, Simon & Meunier, Baptiste & Pedrono, Justine & Reinhardt, Dennis & Wong, Andrew & Wong, Eric & Żochowski, Dawi, 2025. "Negative rates, monetary policy transmission and cross-border lending via international financial centers," Journal of Financial Stability, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:finsta:v:81:y:2025:i:c:s1572308925001032
    DOI: 10.1016/j.jfs.2025.101474
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    Cited by:

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    2. Marco Garofalo & Giovanni Rosso & Roger Vicquéry, 2025. "Sanctions and Currencies in Global Credit," Economics Series Working Papers 1079, University of Oxford, Department of Economics.

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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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