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Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data

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  • Margherita Bottero
  • Camelia Minoiu
  • José-Luis Peydro
  • Andrea Polo
  • Andrea F Presbitero
  • Enrico Sette

Abstract

We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply-- -and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.

Suggested Citation

  • Margherita Bottero & Camelia Minoiu & José-Luis Peydro & Andrea Polo & Andrea F Presbitero & Enrico Sette, 2019. "Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data," IMF Working Papers 2019/044, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2019/044
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    Cited by:

    1. Johannes Bubeck & Angela Maddaloni & José‐Luis Peydró, 2020. "Negative Monetary Policy Rates and Systemic Banks' Risk‐Taking: Evidence from the Euro Area Securities Register," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(S1), pages 197-231, October.
    2. Guglielmo Barone & Fabiano Schivardi & Enrico Sette, 2020. "Interlocking Directorates and Competition in Banking," Working Papers LuissLab 20155, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    3. Albertazzi, Ugo & Barbiero, Francesca & Marqués-Ibáñez, David & Popov, Alexander & Rodriguez d’Acri, Costanza & Vlassopoulos, Thomas, 2020. "Monetary policy and bank stability: the analytical toolbox reviewed," Working Paper Series 2377, European Central Bank.
    4. Jeffrey R. Campbell & Thomas B. King & Anna Orlik & Rebecca Zarutskie, 2020. "Issues Regarding the Use of the Policy Rate Tool," Finance and Economics Discussion Series 2020-070, Board of Governors of the Federal Reserve System (U.S.).
    5. Czudaj, Robert L., 2020. "Is the negative interest rate policy effective?," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 75-86.
    6. Stefan Kerbl & Katharina Steiner, 2020. "Austrian banks’ lending risk appetite in times of expansive monetary policy and tightening capital regulation," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 39, pages 89-109.
    7. Martin Brown, 2020. "Negative Interest Rates and Bank Lending," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 21(01), pages 18-23, April.
    8. Joost Bats & Massimo Giuliodori & Aerdt Houben, 2020. "Monetary policy effects in times of negative interest rates: What do bank stock prices tell us?," DNB Working Papers 694, Netherlands Central Bank, Research Department.
    9. Whelsy Boungou, 2019. "Negative interest rate, bank profitability and risk-taking," Documents de Travail de l'OFCE 2019-10, Observatoire Francais des Conjonctures Economiques (OFCE).
    10. Whelsy BOUNGOU, 2020. "Empirical Evidence of the Lending Channel of Monetary Policy under Negative Interest Rates," Bordeaux Economics Working Papers 2020-16, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    11. Altavilla, Carlo & Burlon, Lorenzo & Giannetti, Mariassunta & Holton, Sarah, 2019. "Is There a Zero Lower Bound? The Effects of Negative Policy Rates on Banks and Firms," CEPR Discussion Papers 14050, C.E.P.R. Discussion Papers.
    12. Sá, Ana Isabel & Jorge, José, 2019. "Does the deposits channel work under a low interest rate environment?," Economics Letters, Elsevier, vol. 185(C).

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    Keywords

    Banking; Bank credit; Bank deposits; Loans; Central bank policy rate; WP; exposure variable; bank control variables; credit supply; policy rate; total assets; yield curve;
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