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Lost in Negative Territory? Search for Yield!

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  • Mattia Girotti
  • Guillaume Horny
  • Jean-Guillaume Sahuc

Abstract

We study how negative interest rate policy (NIRP) affects banks’ loan pricing. Using contract-level data from France, we show that NIRP affects bank lending rates to firms through a portfolio rebalancing channel: banks holding a one standard deviation more of cash and central bank reserves offer a 8.6 basis points lower loan rate after NIRP is introduced. The impact concentrates on medium-term loans (with maturity comprised between three and six years) but not on loans to risky firms, indicating that banks conduct a search for yield focused on term spreads. These findings suggest that NIRP complements quantitative easing policies.

Suggested Citation

  • Mattia Girotti & Guillaume Horny & Jean-Guillaume Sahuc, 2022. "Lost in Negative Territory? Search for Yield!," EconomiX Working Papers 2022-10, University of Paris Nanterre, EconomiX.
    • Handle: RePEc:drm:wpaper:2022-10
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    Cited by:

    1. Dwyer, Gerald P. & Gilevska, Biljana & Nieto, Maria J. & Samartín, Margarita, 2023. "The effects of the ECB’s unconventional monetary policies from 2011 to 2018 on banking assets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 87(C).

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    More about this item

    Keywords

    Negative interest rates; portfolio rebalancing; search for yield; term spreads; banks;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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