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Adapting lending policies when negative interest rates hit banks’ profits

Author

Listed:
  • Óscar Arce

    () (Banco de España)

  • Miguel García-Posada

    () (Banco de España)

  • Sergio Mayordomo

    () (Banco de España)

  • Steven Ongena

    () (University of Zurich, SFI, KU LEUVEN and CEPR)

Abstract

What is the impact of negative interest rates on bank lending and risk-taking? To answer this question we study the changes in lending policies using both the Euro area Bank Lending Survey and the Spanish Credit Register. Banks whose net interest income is adversely affected by negative rates are concurrently lowly capitalized, take less risk and adjust loan terms and conditions to shore up their risk weighted assets and capital ratios. These banks also increase non-interest charges more. But, importantly, we find no differences in banks’ credit supply or standard setting, neither in the Euro area nor in Spain. These findings suggest that negative rates do not necessarily contract the supply of credit and that the so-called “reversal rate” may not have been reached yet.

Suggested Citation

  • Óscar Arce & Miguel García-Posada & Sergio Mayordomo & Steven Ongena, 2018. "Adapting lending policies when negative interest rates hit banks’ profits," Working Papers 1832, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1832
    as

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    File URL: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/18/Files/dt1832e.pdf
    File Function: First version, September 2018
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    References listed on IDEAS

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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Negative Nominal Interest Rates and Banking
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2018-10-22 12:23:45
    2. [経済]マイナス名目金利と銀行業
      by himaginary in himaginaryの日記 on 2018-10-27 00:00:00

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    Cited by:

    1. Altavilla, Carlo & Boucinha, Miguel & Holton, Sarah & Ongena, Steven, 2018. "Credit supply and demand in unconventional times," Working Paper Series 2202, European Central Bank.

    More about this item

    Keywords

    negative interest rates; risk taking; lending policies;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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