Adapting Lending Policies When Negative Interest Rates Hit Banks’ Profits

Arce, Óscar; García-Posada, Miguel; Mayordomo, Sergio; Ongena, Steven

doi:10.2139/ssrn.3255441

Cited by 20 publications

(9 citation statements)

References 42 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…which can no longer decrease their retail deposit rates although they want to do so based on the shadow rate, compensate around 44% of this foregone deposit margin by increasing lending margins. These findings are in line with theoretical predictions byEggertsson et al (2019) andUlate (2021), and empirical work byEggertsson et al (2019),Arce et al (2020) andBasten & Mariathasan (2020) for…”

supporting

confidence: 91%

See 1 more Smart Citation

European Bank Margins at the Zero Lower Bound

2021

View full text Add to dashboard Cite

supporting

confidence: 91%

“…) as a measure of the impact of the ZLB. An important advantage is that the approach allows the timing of the compensation effect to be different per country, depending on how quickly the ZLB starts hurting banks, as argued by Arce et al (2020) and Bittner et al ).…”

Section: Quantifying the Deposit Rate Gap At The Zlbmentioning

confidence: 99%

European Bank Margins at the Zero Lower Bound

2021

View full text Add to dashboard Cite

“…Claessens et al (2018), Lopez et al (2020), Urbschat (2018), and Molyneux et al (2019) find that the effects of low rates on bank profitability are stronger for small banks. Arce et al (2018) and Molyneux et al (2019) show that banks' capitalization may play a role. Molyneux et al (2019) find that the negative effect on banks' overall profitability is stronger for banks with "interest-oriented" business models, for banks that weakly hedge against interest rate risk, and for banks lending within national borders.…”

Section: 6mentioning

confidence: 99%

A prolonged period of low interest rates in Europe: Unintended consequences

Malovaná

Bajzík

Ehrenbergerová

et al. 2022

Journal of Economic Surveys

View full text Add to dashboard Cite

We examine the potential adverse effects of a prolonged period of low interest rates on financial stability from multiple perspectives. First, we provide a unique comparison of natural rates of interest estimated using two approaches—with and without financial factors—for six large European countries inside and outside the euro area. Second, we provide a comprehensive review of the empirical literature, allowing us to identify and categorize financial vulnerabilities, which may be created and fueled by low interest rates. Third, we discuss a situation in which a prolonged period of low interest rates may lead to a point of no return by contributing to higher indebtedness, overvalued asset prices and underpriced risks, resource and credit misallocation, and lower productivity. With respect to all of that, we offer a few monetary policy considerations. Specifically, we suggest that (i) monetary policy should act symmetrically over the medium to long term, (ii) both the short‐term and long‐term costs and benefits of pursuing accommodative or restrictive monetary policy should be accounted for, and (iii) monetary and macroprudential policies need to be coordinated, and their interactions should be accounted for in order to find the best policy mix for the economy.

show abstract

“…The next section will show that negative interest rates could lead to withdrawals of deposits, which would lead to a contractive effect of economic activity. Arce et al (2018) also alert on the adverse effects of negative interest rates on low capitalized banks. On the other hand, they do not find evidence that the reversal rate hurts the supply of credit.…”

Section: Introduction1mentioning

confidence: 99%

Raising Interest Rates for Improving Income

Peña

2023

Journal of Central Banking Theory and Practice

View full text Add to dashboard Cite

This paper illustrates a case where an increase of the interest rates improves the economic activity and reduces income inequality. This theoretical exercise deals with a simple model of disequilibrium with accountant identities of budget constraints. In addition, and following previous models, the effect of the COVID-19 shock is considered, by reflecting asymmetric repercussions that increase income inequality. A simple empirical exercise confirms some of the previous results. The proposed explanation is that, for the euro area, this shock has affected more middle-income households such as the retailers harmed by the compulsory lockdown who have increased their debts.

show abstract

Adapting Lending Policies When Negative Interest Rates Hit Banks’ Profits

Cited by 20 publications

References 42 publications

European Bank Margins at the Zero Lower Bound

European Bank Margins at the Zero Lower Bound

A prolonged period of low interest rates in Europe: Unintended consequences

Raising Interest Rates for Improving Income

Contact Info

Product

Resources

About