Negative interest rates policy and banks’ risk-taking: Empirical evidence

Boungou, Whelsy

doi:10.1016/j.econlet.2019.108760

“…14 Although our two groups have close characteristics prior to treatment (see Figure1), we use the Propensity Score Matching in robustness to build our treatment and control groups. We obtain similar results to our baseline (see Section 4.3).15 Although previous studies on negative rates also include bank fixed effects in their estimates (e.g Boungou, 2020;Lopez et al 2020),. we re-estimate Equation (1) by including country fixed effects.…”

supporting

confidence: 77%

“…15 As suggested by Bertrand et al (2004), we use robust and clustered standard errors at the bank level to control for heteroscedasticity and dependence between observations. The Difference-in-Differences method is widely used in the literature analyzing the effects of negative interest rates on bank behavior (among others, Basten and Mariathasan 2018;Heider et al 2019;Lopez et al 2020;Molyneux et al 2019;Boungou 2020). As noted by Molyneux et al (2019), the advantage of using this method is that it reduces potential endogeneity bias by controlling for omitted variable bias and reverse causality.…”

Section: Empirical Methodologymentioning

confidence: 99%

Empirical evidence of the lending channel of monetary policy under negative interest rates

Boungou

¹

2021

The Quarterly Review of Economics and Finance

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Does the lending channel of monetary policy operate under a negative interest rate policy (NIRP)? The purpose of this study is to shed light on the existence of a lending channel of monetary policy under NIRP. To do so, we aim to provide an in-depth analysis of the relationship between NIRP and banklending behavior. To achieve this, we employ a large panel dataset of 4072 banks operating in 54 countries over the period 2009-2018 and a Difference-in-Differences methodology. We find that banks located in countries affected by negative interest rates have adjusted their bank-lending behavior by increasing lending activities. Our findings suggest that in response to negative interest rates, banks have reduced their lending cost, and increased lending supply, especially for loans longer than 3 months. Finally, we also find that the transmission of monetary policy under negative interest rates to the real economy depends on banks' specific characteristics such as reliance on retail deposits and size.

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“…Looking at these less granular measures that extend beyond the securities portfolio Arce et al. (2018) as well as Boungou (2020) and Reghezza et al. (2019) find a decrease in overall risk (measured as RWA or the z ‐score) after the introduction of negative rates.…”

Section: Contribution and Related Literaturementioning

confidence: 99%

“…Evidence is not unequivocal. Looking at these less granular measures that extend beyond the securities portfolio Arce et al (2018) as well as Boungou (2020) and Reghezza et al (2019) find a decrease in overall risk (measured as RWA or the zscore) after the introduction of negative rates. Basten and Mariathasan (2018) find an increase in RWA for the Swiss banks most affected by the negative interest rates policy.…”

mentioning

confidence: 99%

Negative Monetary Policy Rates and Systemic Banks' Risk‐Taking: Evidence from the Euro Area Securities Register

Bubeck¹,

Maddaloni²,

Peydró³

2020

J of Money Credit Banking

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We show that negative monetary policy rates induce systemic banks to reach‐for‐yield. For identification, we exploit the introduction of negative deposit rates by the European Central Bank in June 2014 and a novel securities register for the 26 largest euro area banking groups. Banks with more customer deposits are negatively affected by negative rates, as they do not pass negative rates to retail customers, in turn investing more in securities, especially in those yielding higher returns. Effects are stronger for less capitalized banks, private‐sector (financial and nonfinancial) securities and dollar‐denominated securities. Affected banks also take higher risk in loans.

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“…15 As suggested by Bertrand et al (2004), we use robust and clustered standard errors at the bank level to control for heteroscedasticity and dependence between observations. The Difference-in-Differences method is widely used in the literature analyzing the effects of negative interest rates on bank behavior (among others, Basten and Mariathasan 2018;Heider et al 2019;Lopez et al 2020;Molyneux et al 2019;Boungou 2020). As noted by Molyneux et al (2019), the advantage of using this method is that it reduces potential endogeneity bias by controlling for omitted variable bias and reverse causality.…”

Section: Empirical Methodologymentioning

confidence: 99%

Empirical Evidence of the Lending Channel of Monetary Policy under Negative Interest Rates

Boungou

¹

2020

SSRN Journal

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2

0

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Does the lending channel of monetary policy operate under a negative interest rate policy (NIRP)? The purpose of this study is to shed light on the existence of a lending channel of monetary policy under NIRP. To do so, we aim to provide an in-depth analysis of the relationship between NIRP and banklending behavior. To achieve this, we employ a large panel dataset of 4072 banks operating in 54 countries over the period 2009-2018 and a Difference-in-Differences methodology. We find that banks located in countries affected by negative interest rates have adjusted their bank-lending behavior by increasing lending activities. Our findings suggest that in response to negative interest rates, banks have reduced their lending cost, and increased lending supply, especially for loans longer than 3 months. Finally, we also find that the transmission of monetary policy under negative interest rates to the real economy depends on banks' specific characteristics such as reliance on retail deposits and size.

show abstract

Negative interest rates policy and banks’ risk-taking: Empirical evidence

Cited by 41 publications

References 10 publications

Empirical evidence of the lending channel of monetary policy under negative interest rates

Empirical evidence of the lending channel of monetary policy under negative interest rates

Negative Monetary Policy Rates and Systemic Banks' Risk‐Taking: Evidence from the Euro Area Securities Register

Empirical Evidence of the Lending Channel of Monetary Policy under Negative Interest Rates

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