IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-03459162.html
   My bibliography  Save this paper

Negative interest rates: incentive or hindrance for the banking system?

Author

Listed:
  • Christophe Blot

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Paul Hubert

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

Since 2014, the ECB has applied a negative interest rate on the excess reserves (and deposit facilities) of commercial banks. This policy is complementary to Quantitative Easing (QE), a program whereby the ECB purchases securities on financial markets. Indeed, the QE provides liquidity to the banks and negative interest rates encourage them to reallocate this liquidity. The negative reserve rate amplifies the fall in short-term and long-term market rates and reinforces the incentive for commercial banks to operate reallocation on their portfolios towards riskier assets. The total amount of liquidity subject to a negative interest rate is 1047 billion euros. Negative interest rates should reduce interest rate margins but the impact on profitability is mitigated by the capital gains banks realise when selling securities to the ECB under QE, by the possibility banks have to finance themselves at negative rates, by a decrease in the risk of default and by the possibility to raise non-interest income.

Suggested Citation

  • Christophe Blot & Paul Hubert, 2016. "Negative interest rates: incentive or hindrance for the banking system?," Working Papers hal-03459162, HAL.
    • Handle: RePEc:hal:wpaper:hal-03459162
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03459162
    as

    Download full text from publisher

    File URL: https://sciencespo.hal.science/hal-03459162/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Buiter, Willem H., 2009. "Negative nominal interest rates: Three ways to overcome the zero lower bound," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 213-238, December.
    2. Buiter, Willem H. & Panigirtzoglou, Nikolaos, 1999. "Liquidity Traps: How to Avoid Them and How to Escape Them," CEPR Discussion Papers 2203, C.E.P.R. Discussion Papers.
    3. Andries, Natalia & Billon, Steve, 2016. "Retail bank interest rate pass-through in the euro area: An empirical survey," Economic Systems, Elsevier, vol. 40(1), pages 170-194.
    4. repec:hal:spmain:info:hdl:2441/6eod50dsnj80erh8hncbqqfs7g is not listed on IDEAS
    5. Piti Disyatat, 2008. "Monetary policy implementation: Misconceptions and their consequences," BIS Working Papers 269, Bank for International Settlements.
    6. Andreas Jobst & Ms. Huidan Huidan Lin, 2016. "Negative Interest Rate Policy (NIRP): Implications for Monetary Transmission and Bank Profitability in the Euro Area," IMF Working Papers 2016/172, International Monetary Fund.
    7. Harriet Jackson, 2015. "The International Experience with Negative Policy Rates," Discussion Papers 15-13, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Whelsy Boungou, 2019. "Negative Interest Rates, Bank Profitability and Risk-taking," Working Papers hal-03456106, HAL.
    2. Zsolt Darvas & David Pichler, 2018. "Excess liquidity and bank lending risks in the euro area," Policy Contributions 27593, Bruegel.
    3. Whelsy Boungou & Charles Mawusi, 2023. "Bank lending margins in a negative interest rate environment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 886-901, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:hal:spmain:info:hdl:2441/4becfeb5av97abu32kpfiu3srd is not listed on IDEAS
    2. Petr Wawrosz & Semen Traksel, 2023. "Negative Interest Rates and Its Impact on GDP, FDI and Banks’ Financial Performance: The Cases of Switzerland and Sweden," IJFS, MDPI, vol. 11(2), pages 1-23, May.
    3. Katrin Assenmacher & Signe Krogstrup, 2018. "Monetary Policy with Negative Interest Rates: Decoupling Cash from Electronic Money," IMF Working Papers 2018/191, International Monetary Fund.
    4. Ulrich van Suntum, "undated". "Economic Confidence, Negative Interest Rates, and Liquidity: Towards Keynesianism 2.0," Working Papers 200108, Institute of Spatial and Housing Economics, Munster Universitary.
    5. Zura Kakushadze & Willie Yu, 2019. "iCurrency?," Papers 1911.01272, arXiv.org, revised Nov 2019.
    6. van Suntum, Ulrich, 2009. "Economic confidence, negative interest rates, and liquidity: Towards Keynesianism 2.0," CAWM Discussion Papers 24, University of Münster, Münster Center for Economic Policy (MEP).
    7. Ad Van Riet, 2017. "The ECB’s Fight against Low Inflation: On the Effects of Ultra-Low Interest Rates," IJFS, MDPI, vol. 5(2), pages 1-27, April.
    8. Horvath, Roman & Kotlebova, Jana & Siranova, Maria, 2018. "Interest rate pass-through in the euro area: Financial fragmentation, balance sheet policies and negative rates," Journal of Financial Stability, Elsevier, vol. 36(C), pages 12-21.
    9. Romina Ruprecht, 2020. "Negative interest rates, capital flows and exchange rates," ECON - Working Papers 351, Department of Economics - University of Zurich.
    10. Dominika Kolcunova & Tomas Havranek, 2018. "Estimating the Effective Lower Bound on the Czech National Bank’s Policy Rate," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(6), pages 550-577, December.
    11. Aleksander Berentsen & Hugo van Buggenum & Romina Ruprecht, 2020. "On the negatives of negative interest rates and the positives of exemption thresholds," ECON - Working Papers 372, Department of Economics - University of Zurich.
    12. Meixing Dai & Fanny Loux, 2017. "Les taux d’intérêt nominaux négatifs sont-ils efficaces pour relancer la croissance des crédits et de l’économie ?," Bulletin de l'Observatoire des politiques économiques en Europe, Observatoire des Politiques Économiques en Europe (OPEE), vol. 36(1), pages 9-20, June.
    13. Megumu Kinugawa, 2019. "The unconventional monetary policy of the Bank of Japan during the period 2013–2018: comments and views on Shirai," International Journal of Economic Policy Studies, Springer, vol. 13(2), pages 347-358, August.
    14. Kapuściński, Mariusz & Stanisławska, Ewa, 2018. "Measuring bank funding costs in the analysis of interest rate pass-through: Evidence from Poland," Economic Modelling, Elsevier, vol. 70(C), pages 288-300.
    15. Grahame Johnson & Sharon Kozicki & Romanos Priftis & Lena Suchanek & Jonathan Witmer & Jing Yang, 2020. "Implementation and Effectiveness of Extended Monetary Policy Tools: Lessons from the Literature," Discussion Papers 2020-16, Bank of Canada.
    16. Svensson, Roger & Westermark, Andreas, 2015. "Renovatio Monetae: Gesell Taxes in Practice," Working Paper Series 1083, Research Institute of Industrial Economics.
    17. Ulrich van Suntum & Metin Kaptan & Cordelius Ilgmann, "undated". "Reducing the lower bound on market interest rates," Working Papers 200103, Institute of Spatial and Housing Economics, Munster Universitary.
    18. Aleksander Berentsen & Romina Ruprecht & Hugo van Buggenum, 2023. "On the Negatives of Negative Interest Rates," Finance and Economics Discussion Series 2023-064, Board of Governors of the Federal Reserve System (U.S.).
    19. Martin Menner, 2011. ""Gesell Tax" and Efficiency of Monetary Exchange," Working Papers. Serie AD 2011-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    20. Bagus, Philipp & Howden, David, 2014. "Fiscal Considerations of Central Bank Recapitalization," MPRA Paper 79606, University Library of Munich, Germany.
    21. Seitz, Franz & Krueger, Malte, 2017. "The Blessing of Cash," International Cash Conference 2017 – War on Cash: Is there a Future for Cash? 162911, Deutsche Bundesbank.

    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-03459162. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.