Banks and negative interest rates

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See all articles by Florian Heider

Florian Heider

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Farzad Saidi

Boston University - Questrom School of Business; Centre for Economic Policy Research (CEPR)

Glenn Schepens

ECB -Financial Research Division

Date Written: November 12, 2020

Abstract

In this paper, we survey the nascent literature on the transmission of negative policy rates. We discuss the theory of how the transmission depends on bank balance sheets, and how this changes once policy rates become negative. We review the growing evidence that negative policy rates are special because the pass-through to banks' retail deposit rates is hindered by a zero lower bound. We summarize existing work on the impact of negative rates on banks' lending and securities portfolios, and the consequences for the real economy. Finally, we discuss the role of different ``initial'' conditions when the policy rate becomes negative, and potential interactions between negative policy rates and other unconventional monetary policies.

Keywords: deposits, negative interest rates, zero lower bound, bank lending, bank risk taking, euro-area heterogeneity

JEL Classification: E44, E52, E58, G20, G21

Suggested Citation

Heider, Florian and Saidi, Farzad and Schepens, Glenn, Banks and negative interest rates (November 12, 2020). Available at SSRN: https://ssrn.com/abstract=

Florian Heider (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

HOME PAGE: http://https://sites.google.com/site/florianheider2/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Farzad Saidi

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Glenn Schepens

ECB -Financial Research Division ( email )

Frankfurt am Main
Germany

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