Adapting Lending Policies When Negative Interest Rates Hit Banks’ Profits
43 Pages Posted: 30 Apr 2018
Date Written: April 11, 2018
What is the impact of negative interest rates on bank lending and risk-taking? To answer this question we study the changes in lending policies using the Euro area Bank Lending Survey and the Spanish Credit Register. Banks whose net interest income is adversely affected by negative rates are concurrently lowly capitalized, take less risk and adjust loan terms and conditions to shore up their risk weighted assets and capitalization. These banks also increase non-interest charges more. Importantly, we find no differences in banks’ credit supply and credit standard setting, neither in Euro area nor in Spain, suggesting that negative rates do not necessarily contract the supply of credit, which can be interpreted in the sense that the so-called “reversal rate” has not been reached yet.
Keywords: negative interest rates; risk taking; lending policies
JEL Classification: G21, E52, E58
Suggested Citation: Suggested Citation