Bank Lending Margins in a Negative Interest Rate Environment

28 Pages Posted: 16 Dec 2019 Last revised: 22 Dec 2020

See all articles by Whelsy Boungou

Whelsy Boungou

PSB Paris School of Business

Charles Mawusi

University of Bordeaux - GREThA (Research Group in Theoretical and Applied Economics); University of Bordeaux

Date Written: December 2020

Abstract

Following the 2008 Global Financial Crisis, the central banks of many advanced economies resorted to unconventional monetary policies including, the adoption of a negative interest rate policy, aimed at spurring economic recovery and growth. The effectiveness of this policy remains an ongoing debate and largely limited to theoretical assertions. Using a dataset of 9,638 banks from 41 countries over the period 2009–2018, and a Difference-in-Differences estimator, this paper examines whether the adoption of a negative interest rate policy has any effect on bank lending margins. We find that bank margins have contracted in countries where negative rates have been implemented. Our results suggest that, in a negative interest rate environment, the rate on loans declines faster than the rate on retail deposits. Moreover, we show that the effects of NIRP on bank lending margins were stronger for smaller, less capitalized, deposit-dependent banks. Finally, our findings indicate that banks reliant on retail deposits increased lending in response to NIRP.

Keywords: Negative Interest Rates, Bank Margins, Loan Rate, Deposit Rate, Difference-in-Differences Estimation

JEL Classification: E43, E51, E52, F34, G21

Suggested Citation

Boungou, Whelsy and Mawusi, Charles, Bank Lending Margins in a Negative Interest Rate Environment (December 2020). Available at SSRN: https://ssrn.com/abstract=3495247 or http://dx.doi.org/10.2139/ssrn.3495247

Whelsy Boungou (Contact Author)

PSB Paris School of Business

59 rue Nationale
Paris, 75013
France

Charles Mawusi

University of Bordeaux - GREThA (Research Group in Theoretical and Applied Economics) ( email )

Pessac, 33400
France

University of Bordeaux ( email )

Avenue Léon Duguit
Bordeaux, 33000
France

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