Adapting lending policies in a “negative-for-long” scenario (Updated October 2020)
46 Pages Posted: 8 Oct 2018 Last revised: 15 Oct 2020
There are 3 versions of this paper
Bank Lending Policies and Monetary Policy: Some Lessons From the Negative Interest Era
Adapting Lending Policies When Negative Interest Rates Hit Banks’ Profits
Date Written: October 15, 2020
Abstract
What is the long-term impact of negative interest rates on bank lending? To answer this question we construct a unique summary measure of negative rate exposure by individual banks based on exclusive survey data, and couple it with the credit register of Spain to identify this impact on the supply of credit to firms. We find that only after a few years of negative rates do affected banks (relative to non-affected banks) decrease their supply and increase their rates, especially when lowly capitalized and lending to risky firms. However, no firms are facing funding constraints, yet.
Keywords: negative interest rates, negative for long, lending policies, banks capital ratio, risk taking
JEL Classification: G21, E52, E58
Suggested Citation: Suggested Citation