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Title: Monetary Policy and Bank Profitability in a Low Interest Rate Environment: A Follow-up and a Rejoinder

Author(s): Charles A E Goodhart and Ali Kabiri

Publication Date: May 2019

Keyword(s): Bank profitability, credit extension, Low interest rates and Net interest margin

Programme Area(s): Monetary Economics and Fluctuations

Abstract: There is a debate about the effect of the extremely low, or even negative, interest rate regime on bank profitability. On the one hand it raises demand and thereby adds to bank profits, while on the other hand it lowers net interest margins, especially at the Zero Lower Bound. In this paper we review whether the prior paper by Altavilla, Boucinha and Peydrˇ (2018) on this question for the Eurozone can be generalized to other monetary blocs, i.e. USA and UK. While our findings have some similarity with their earlier work, we are more concerned about the possible negative effects of this regime, not only on bank profitability but also on bank credit extension more widely.

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Bibliographic Reference

Goodhart, C and Kabiri, A. 2019. 'Monetary Policy and Bank Profitability in a Low Interest Rate Environment: A Follow-up and a Rejoinder'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13752