TY - JOUR

T1 - Did negative interest rates improve bank lending?

AU - Molyneux, Philip

AU - Reghezza, Alessio

AU - Thornton, John

AU - Xie, Ru

N1 - This is a post-peer-review, pre-copyedit version of an article published in Journal of Financial Services Research. The final authenticated version is available online at: http://dx.doi.org/10.1007/s10693-019-00322-8.

PY - 2020/2

Y1 - 2020/2

N2 - 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 6558 banks from 33 OECD member countries over 2012–2016 and a matched difference-in-differences estimator 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. 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 operated in more competitive markets.

AB - 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 6558 banks from 33 OECD member countries over 2012–2016 and a matched difference-in-differences estimator 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. 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 operated in more competitive markets.

KW - Bank lending

KW - Difference in differences estimation

KW - Monetary policy transmission

KW - Negative interest rates

KW - Propensity score matching

UR - https://link.springer.com/article/10.1007/s10693-019-00322-8/tables/7

U2 - 10.1007/s10693-019-00322-8

DO - 10.1007/s10693-019-00322-8

M3 - Article

VL - 57

SP - 51

EP - 68

JO - Journal of Financial Services Research

JF - Journal of Financial Services Research

SN - 0920-8550

IS - 1

ER -