Banks and Negative Interest Rates

30 Pages Posted: 19 May 2021

See all articles by Florian Heider

Florian Heider

Leibniz Institute for Financial Research SAFE; Goethe University Frankfurt; Centre for Economic Policy Research (CEPR)

Farzad Saidi

University of Bonn; Centre for Economic Policy Research (CEPR)

Glenn Schepens

European Central Bank (ECB)

Multiple version iconThere are 3 versions of this paper

Date Written: May 1, 2021

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.

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

Suggested Citation

Heider, Florian and Saidi, Farzad and Schepens, Glenn, Banks and Negative Interest Rates (May 1, 2021). ECB Working Paper No. 2021/2549, Available at SSRN: https://ssrn.com/abstract=3845171 or http://dx.doi.org/10.2139/ssrn.3845171

Florian Heider (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt, 60323
Germany

Goethe University Frankfurt ( email )

Finance Department
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Farzad Saidi

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Glenn Schepens

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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