Negative Interest Rates: Forecasting Banks' Profitability in a New Environment

Kerbl, Stefan; Sigmund, Michael

doi:10.2139/ssrn.2901932

Cited by 9 publications

(13 citation statements)

References 14 publications

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“…4 Our paper is also related to an empirical literature on the connection between interest rate levels and bank profits (Borio andGambacorta 2017, Kerbl andSigmund 2017), as well as a theoretical literature linking credit supply to banks net worth (Holmstrom andTirole 1997, Gertler andKiyotaki 2010). Koby (2017), who contemplate a reversal rate in which further interest rate cuts become contractionary.…”

Section: Introductionmentioning

confidence: 96%

Negative Nominal Interest Rates and the Bank Lending Channel

Eggertsson

Juelsrud²,

Summers

et al. 2019

SSRN Journal

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Following the crisis of 2008, several central banks engaged in a new experiment by setting negative policy rates. Using aggregate and bank level data, we document that deposit rates stopped responding to policy rates once they went negative and that bank lending rates in some cases increased rather than decreased in response to policy rate cuts. Based on the empirical evidence, we construct a macro-model with a banking sector that links together policy rates, deposit rates and lending rates. Once the policy rate turns negative, the usual transmission mechanism of monetary policy through the bank sector breaks down. Moreover, because a negative policy rate reduces bank profits, the total effect on aggregate output can be contractionary. A calibration which matches Swedish bank level data suggests that a policy rate of-0.50 percent increases borrowing rates by 15 basis points and reduces output by 7 basis points. * This working paper should not be reported as representing the views of Norges Bank. The views expressed are those of the authors and do not necessarily reflect those of Norges Bank. This paper replaces an earlier draft titled Are Negative Nominal Interest Rates Expansionary? We are grateful to compricer.se and Christina Soderberg for providing bank level interest rate data. We are also grateful to seminar and conference participants at Bundesbanken, Brown University, CEF 2018, the European Central Bank,

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Section: Introductionmentioning

confidence: 96%

Negative Nominal Interest Rates and the Bank Lending Channel

Eggertsson

Juelsrud²,

Summers

et al. 2019

SSRN Journal

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show abstract

Section: Introductionmentioning

confidence: 98%

Negative Nominal Interest Rates and the Bank Lending Channel

Eggertsson¹,

Juelsrud²,

Summers³

et al. 2019

139

153

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“…On the one hand, several studies have shown that interest rates could have negative effects on bank profitability (Genay and Podjasek, 2014;Busch and Memmel, 2017;Dell"Ariccia et al 2017; and many others). On the other hand, some authors find opposite effects on bank profitability (among others, Scheiber et al 2016;Jobst and Lin, 2017;Kerbl and Sigmund, 2017;Madaschid and Nuevo, 2017;Basten and Mariathasan, 2018). Genay and Podjasek (2014) study the impact of a low interest rate environment on bank profitability.…”

Section: Interest Rates and Banks' Profitabilitymentioning

confidence: 99%

“…The results of this literature are not unanimous as to the effects of negative rates on bank profitability. On the one hand, some papers show that negative rates have negative effects on profitability (among others, Kerbl and Sigmund, 2017;Molyneux et al 2018). On the other hand, other studies find the opposite results (Scheiber et al 2016;Jobst and Lin, 2017;Madaschid and Nuevo, 2017;Basten and Mariathsan, 2018).…”

Section: Hypothesis 1: Negative Interest Rates Impact Banks' Profitabmentioning

confidence: 99%

“…Consequently, negative rates would contribute significantly to the erosion of NIM. The fact that negative interest rates have a greater impact on banks' margins (compared to low and positive rates) probably indicates banks' reluctance to charge negative deposit rate (Kerbl and Sigmund, 2017;Heider et al 2018;Basten and Mariathasan, 2018). However, these results are opposite to those Madaschi and Nuevo (2017) find that profitability of banks in Sweden and Denmark has continued to improve, even with negative monetary policy rates.…”

Section: Wherementioning

confidence: 99%

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Negative Interest Rates, Bank Profitability and Risk-taking

Boungou

2019

SSRN Journal

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Using a panel dataset of 2442 banks operating in the 28 EU countries over the period from 2011 to 2017, this paper aims to assess the impact of negative interest rates on banks" profitability and risk-taking. Using dynamic panel models, we find that the effect of negative interest rates on banks' margins is stronger compared to an environment of positive rates. We notice that negative rates have squeezed banks' net interest margins. We also find that banks have offset the effects on margins by increasing non-interest income. Furthermore, negative interest rates contributed to a reduction in banks' risk-taking. Finally, we note that the effects of negative rates on profitability and risk-taking differ among banks, depending on their specific balance sheet characteristics.

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Negative Interest Rates: Forecasting Banks' Profitability in a New Environment

Cited by 9 publications

References 14 publications

Negative Nominal Interest Rates and the Bank Lending Channel

Negative Nominal Interest Rates and the Bank Lending Channel

Negative Nominal Interest Rates and the Bank Lending Channel

Negative Interest Rates, Bank Profitability and Risk-taking

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