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Did Negative Interest Rates Impact Bank Lending?

Author

Listed:
  • Phil Molyneux

    (Bangor University)

  • Rue Xie

    (Bangor University)

  • John Thornton

    (Bangor University)

  • Alessio Reghezza

    (Bangor University)

Abstract
Since 2012 several central banks have introduced a negative interest rate policy (NIRP) aimed at boosting real spending by facilitating an increase in the supply and demand for bank loans. We employ a bank-level dataset comprising 16,675 banks from 33 OECD member countries over 2012-2016 and a difference-in-differences methodology to analyze whether NIRP resulted in a change in bank lending in NIRP-adopter countries compared to those that did not adopt the policy. Our results suggest that following the introduction of negative interest rates, bank lending was weaker in NIRP-adopter countries than in countries that did not adopt the policy. The result is robust to a wide range of checks. This adverse NIRP effect appears to have been stronger for banks that were smaller, more dependent on retail deposit funding, less well capitalized, had business models reliant on interest income, and operate in more competitive markets. NIRP also appears to have canceled out the stimulus impact of other forms of unconventional monetary policy

Suggested Citation

  • Phil Molyneux & Rue Xie & John Thornton & Alessio Reghezza, 2017. "Did Negative Interest Rates Impact Bank Lending?," Working Papers 17002, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    • Handle: RePEc:bng:wpaper:17002
    as

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    File URL: https://www.bangor.ac.uk/business/research/documents/BBSWP-17-02.pdf
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    References listed on IDEAS

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    Cited by:

    1. Thornton, John & di Tommaso, Caterina, 2018. "Unconventional monetary policy and the ‘currency wars’," Finance Research Letters, Elsevier, vol. 26(C), pages 250-254.
    2. GUNJI Hiroshi, 2018. "Did BOJ's Negative Interest Rate Policy Increase Bank Lending?," Discussion papers 18086, Research Institute of Economy, Trade and Industry (RIETI).
    3. Thornton, John & Vasilakis, Chrysovalantis, 2019. "Negative policy interest rates and exchange rate behavior: Further results," Finance Research Letters, Elsevier, vol. 29(C), pages 61-67.

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    More about this item

    Keywords

    Negative interest rates; monetary policy transmission; bank lending; difference in differences estimation;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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