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Banks and negative interest rates

Author

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  • Heider, Florian
  • Saidi, Farzad
  • Schepens, Glenn

Abstract

In this paper, we survey the nascent literature on the transmission of negative policy rates. We discuss the theory of how the transmission depends on bank balance sheets, and how this changes once policy rates become negative. We review the growing evidence that negative policy rates are special because the pass-through to banks’ retail deposit rates is hindered by a zero lower bound. We summarize existing work on the impact of negative rates on banks’ lending and securities portfolios, and the consequences for the real economy. Finally, we discuss the role of different “initial” conditions when the policy rate becomes negative, and potential interactions between negative policy rates and other unconventional monetary policies. JEL Classification: E44, E52, E58, G20, G21

Suggested Citation

  • Heider, Florian & Saidi, Farzad & Schepens, Glenn, 2021. "Banks and negative interest rates," Working Paper Series 2549, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20212549
    Note: 276127
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    Citations

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    Cited by:

    1. Grandi, Pietro & Guille, Marianne, 2023. "Banks, deposit rigidity and negative rates," Journal of International Money and Finance, Elsevier, vol. 133(C).
    2. Girotti Mattia & Horny Guillaume & Sahuc Jean-Guillaume, 2022. "Lost in Negative Territory? Search for Yield!," Working papers 877, Banque de France.
    3. Claudia Kwapil & Kilian Rieder, 2021. "The effects of the monetary policy response to the COVID-19 pandemic: preliminary evidence from a pilot study using Austrian bank-level data," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/20-Q1/, pages 131-152.
    4. Darracq Pariès, Matthieu & Kok, Christoffer & Rottner, Matthias, 2023. "Reversal interest rate and macroprudential policy," European Economic Review, Elsevier, vol. 159(C).
    5. Abildgren, Kim & Kuchler, Andreas, 2023. "Firm behaviour under negative deposit rates," European Economic Review, Elsevier, vol. 151(C).
    6. Marcel Barmeier, 2022. "The new normal: bank lending and negative interest rates in Austria (Marcel Barmeier)," Working Papers 242, Oesterreichische Nationalbank (Austrian Central Bank).
    7. Burietz, Aurore & Picault, Matthieu, 2023. "To lend or not to lend? The ECB as the ‘intermediary of last resort’," Economic Modelling, Elsevier, vol. 122(C).
    8. Jorien Freriks & Jan Kakes, 2021. "Bank interest rate margins in a negative interest rate environment," Working Papers 721, DNB.
    9. Fungáécová, Zuzana & Kerola, Eeva & Laine, Olli-Matti, 2023. "Monetary policy transmission below zero," Bank of Finland Research Discussion Papers 11/2023, Bank of Finland.
    10. Jos'e Pedro Gaiv~ao & Benito Pires, 2022. "Chaotic time series in financial processes consisting of savings with piecewise constant monthly contributions," Papers 2206.11933, arXiv.org, revised Feb 2023.

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    More about this item

    Keywords

    bank lending; bank risk taking; deposits; euro-area heterogeneity; negative interest rates; zero lower bound;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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