Adapting Lending Policies When Negative Interest Rates Hit Banks’ Profits

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

doi:10.2139/ssrn.3166006

Cited by 42 publications

(31 citation statements)

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“…margins. In support of this line of reasoning, Arce et al (2018) find that banks that report a higher impact of negative rates on their net interest income in the BLS are on average, less capitalised and tend to grant loans with shorter maturity and lower average loan size (although they only test for correlation).…”

Section: Interpretation Of Resultsmentioning

confidence: 89%

Beyond the Zero Lower Bound: Negative Policy Rates and Bank Lending

Tan

2019

SSRN Journal

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Section: Interpretation Of Resultsmentioning

confidence: 89%

Beyond the Zero Lower Bound: Negative Policy Rates and Bank Lending

Tan

2019

SSRN Journal

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“…Turk (2016) examines samples of Danish and Swedish banks and finds that bank margins were roughly stable across the zero threshold; reductions in wholesale funding costs and increased fees offset losses experienced in interest income. Arce, et al (2018) find that banks with reduced net interest margins under negative rates are often poorly capitalized and take less risk.…”

Section: Literature Reviewmentioning

confidence: 97%

Why Have Negative Nominal Interest Rates Had Such a Small Effect on Bank Performance? Cross Country Evidence

López¹,

Rose²,

Spiegel³

2018

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We examine the effect of negative nominal interest rates on bank profitability and behavior using a cross-country panel of over 5,100 banks in 27 countries. Our data set includes annual observations for Japanese and European banks between 2010 and 2016, which covers all advanced economies that have experienced negative nominal rates, including currency union members as well as both fixed and floating exchange rates countries. When we compare negative nominal interest rates with low positive rates, banks experience losses in interest income that are almost exactly offset by savings on deposit expenses and gains in non-interest income, including capital gains on securities and fees. We find heterogeneous effects of negative rates: floating exchange rates, small banks, and banks with low deposit ratios drive most of our results. Low-deposit banks have enjoyed particularly striking gains in non-interest income, likely from capital gains on securities. There have only been modest differences between high and low deposit-ratio banks' changes in interest expenses; high deposit banks do not seem disproportionately vulnerable to negative rates. Overall, our results indicate surprisingly benign implications of negative rates for commercial banks thus far.

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“…None of these previous studies use micro data on lenders and borrowers so they cannot control for unobserved time-varying firm-level characteristics such as credit demand and risk. Finally, Arce et al (2018) compare the lending behavior of Spanish banks that reported to the ECB's Bank Lending Survey their views on the incidence of NIRP on net interest income in April 2016 (that is, two years after the introduction of NIRP). Their analysis shows that the banks which indicated profitability had been negatively impacted by this policy took less risk in their loan portfolio and that credit supply did not change differentially across banks.…”

Section: Institutional Backgroundmentioning

confidence: 99%