Bank Intermediation Activity in a Low Interest Rate Environment

31 Pages Posted: 9 Sep 2019

See all articles by Michael Brei

Michael Brei

Université de Lille

Leonardo Gambacorta

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Claudio E. V. Borio

Bank for International Settlements (BIS) - Research and Policy Analysis

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Date Written: August 30, 2019

Abstract

This paper investigates how the prolonged period of low interest rates affects bank intermediation activity. We use data for 113 large international banks headquartered in 14 major advanced economies during the period 1994-2015. We find that low interest rates induce banks to shift their activities from interest-generating to fee-related and trading activities. This rebalancing is stronger for low capitalised banks.Banks also moderately adjust their funding structure, away from short-term market funding towards deposits. We observe a concomitant decline in the risk-weighted asset ratio and a reduction in loan-loss provisions, which is consistent with signs of evergreening.

Keywords: monetary policy, bank business models, financial crisis

JEL Classification: C53, E43, E52, G21

Suggested Citation

Brei, Michael and Gambacorta, Leonardo and Borio, Claudio E.V., Bank Intermediation Activity in a Low Interest Rate Environment (August 30, 2019). BIS Working Paper No. 807 . Available at SSRN: https://ssrn.com/abstract=3448732

Michael Brei (Contact Author)

Université de Lille ( email )

Cité Scientifique
Villeneuve-d'Ascq, 59650
France

Leonardo Gambacorta

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Claudio E.V. Borio

Bank for International Settlements (BIS) - Research and Policy Analysis ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

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