Citation

Discussion Paper Details

Please find the details for DP13191 in an easy to copy and paste format below:

Full Details

Title: Life below zero: Bank lending under negative policy rates

Author(s): Florian Heider, Farzad Saidi and Glenn Schepens

Publication Date: September 2018

Keyword(s): bank balance-sheet channel, bank risk-taking channel, deposits, Negative Interest Rates and zero lower bound

Programme Area(s): Financial Economics

Abstract: We show that negative policy rates affect the supply of bank credit in a novel way. Banks are reluctant to pass on negative rates to depositors, which increases the funding cost of high-deposit banks, and reduces their net worth, relative to low-deposit banks. As a consequence, the introduction of negative policy rates by the European Central Bank in mid-2014 leads to more risk taking and less lending by euro-area banks with greater reliance on deposit funding. Our results suggest that negative rates are less accommodative, and could pose a risk to financial stability, if lending is done by high-deposit banks.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13191

Bibliographic Reference

Heider, F, Saidi, F and Schepens, G. 2018. 'Life below zero: Bank lending under negative policy rates'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13191