Low-for-Long Interest Rates and Net Interest Margins of Banks in Advanced Foreign Economies

Claessens, Stijn; Coleman, Nicholas; Donnelly, Michael S.

doi:10.17016/2573-2129.20

Cited by 30 publications

(21 citation statements)

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“…Using an exogenous threshold of 1.25 percent for the dummy of the low-interest rate environment in our estimations, we follow and Claessens et al (2016). However, we are aware that the exogenous selection of the value is somewhat arbitrarily.…”

Section: The Econometric Modelmentioning

confidence: 99%

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Did Interest Rates at the Zero Lower Bound Affect Lending of Commercial Banks? Evidence for the Euro Area

Belke

Dreger

2019

Jahrbücher Für Nationalökonomie Und Statistik

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The paper examines the bank lending activities of banks in a low interest rate environ-ment. External financing of small-and medium-sized enterprises in the euro area primari-ly takes place via bank loans and not through capital markets. Based on the Bankscope database, bank balance sheet data is utilized. Control variables are included, such as for the system of banking regulation. The panel estimation includes 706 banks from 15 Euro area member states and is conducted for the period 2000 to 2015. All models show a significant positive impact of lower interest rates on net lending. In particular, the results do not indicate that credit is restricted if interest rates move towards the zero-lower bound. JEL-Classification: E44, E51, E52 AbstractThe paper examines the bank lending activities of banks in a low interest rate environment. External financing of small-and medium-sized enterprises in the euro area primarily takes place via bank loans and not through capital markets. Based on the Bankscope database, bank balance sheet data is utilized. Control variables are included, such as for the system of banking regulation. The panel estimation includes 706 banks from 15 Euro area member states and is conducted for the period 2000 to 2015. All models show a significant positive impact of lower interest rates on net lending. In particular, the results do not indicate that credit is restricted if interest rates move towards the zero-lower bound. JEL-Codes: E44, E51, E52 Keywords:Bank lending, banking regulation, monetary transmission mechanisms, low interest rate environmentBelke (corresponding author): Ad personam Jean Monnet Professor, University of Duisburg-Essen, ansgar.belke@uni-due.de, Dreger: cdreger@diw.de. We would like to thank the Wissenschaftsförderung der Sparkassen-Finanzgruppe e. V. for financial support.

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Section: The Econometric Modelmentioning

confidence: 99%

“…The changes in the identified thresholds for our dummy variables and thus also the interaction term variables are marginal which seems to be mainly due to our short time series. Hence, we feel legitimised to proceed like and Claessens et al (2016) and set the exogenous threshold at a value of 1.25.…”

Section: The Econometric Modelmentioning

confidence: 99%

Did Interest Rates at the Zero Lower Bound Affect Lending of Commercial Banks? Evidence for the Euro Area

Belke

Dreger

2019

Jahrbücher Für Nationalökonomie Und Statistik

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“…While studies on the effectiveness of lower interest rate have been done by Claessens et al (2017) examines the substitution between net interest margin and capital valuation at certain interest rates. Bech and Malkhozov (2016) show that low interest rates below zero will transmit through all short-term risk assets.…”

Section: Empirical Studymentioning

confidence: 99%

Effectiveness and Forecasting of Interest Rate Reversal BI 7-Day Repo Rate in Indonesia: Lower Bound on Monetary Policy?

Sanica¹,

Nurcita²,

Mastra³

et al. 2018

Mediterranean Journal of Social Sciences

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This study aims to analyze effectivity and forecast of interest rate BI 7-Day Repo Rate as policy reference in the implementation of monetary policy. The method was used in this study contains Vector Autoregression (VAR) to estimate effectivity of BI 7-Day Repo Rate and Autoregressive Integrated Moving Average (ARIMA) to forecast of BI 7-Day Repo Rate. Period of observation in this study used time series data during 2016.4 until 2017.6. The result of this research shows that the transformation of the BI Rate to BI 7-Day Repo Rate is the right step in the monetary policy operation in the effort to reach deepening of the financial market and strengthen the interbank money market structure so that it will decrease loan interest rate and encourage credit growth. The effectiveness of the use of BI 7 Day-Repo Rate on price stability is indicated by the positive relationship between the benchmark interest rate and inflation compared to the BI Rate. The impact of BI 7-Day Repo Rate on economic growth that tends to be positive. Forecasting the use of BI 7-Day Repo Rate shows good results with declining value levels, so this will encourage deepening the financial markets.

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“…This is particularly relevant for retail depositors, which could face lower costs of substituting currency for deposits than large businesses and institutional investors (McAndrews 2015). Recent empirical evidence suggests a positive relationship between short-term interest rates and net interest margins, with the adverse effect on profitability being particularly significant in a low interest rate environment (Claessens, Coleman and Donnelly 2016;Borio et al 2015).…”

Section: Impact On Financial Intermediariesmentioning

confidence: 99%

“…Banks and non-financial corporates with elevated foreign currency mismatches and/or significant reliance on short-term debt warrant close monitoring (Claessens, Coleman, and Donnelly 2016).…”

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confidence: 99%

Negative Interest Rate Policies: Sources and Implications

Arteta

Köse²,

Stocker³

et al. 2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: Against the background of continued growth disappointments, depressed inflation expectations, and declining real equilibrium interest rates, a number of central banks have implemented negative interest rate policies (NIRP) to provide additional monetary policy stimulus over the past few years. This paper studies the sources and implications of NIRP. We report four main results. First, monetary transmission channels under NIRP are conceptually analogous to those under conventional monetary policy but NIRP present complications that could limit policy effectiveness. Second, since the introduction of NIRP, many of the key financial variables have evolved broadly as implied by the standard transmission channels. Third, NIRP could pose risks to financial stability, particularly if policy rates are substantially below zero or if NIRP are employed for a protracted period of time. Potential adverse consequences include the erosion of profitability of banks and other financial intermediaries, and excessive risk taking. However, there has so far been no significant evidence that financial stability has been compromised because of NIRP. Fourth, spillover implications of NIRP for emerging market and developing economies are mostly similar to those of other unconventional monetary policy measures. In sum, NIRP have a place in a policy maker's toolkit but, given their domestic and global implications, these policies need to be handled with care to secure their benefits while mitigating risks. Terms of use: Documents inJEL Codes: E52, E58, E60.

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Low-for-Long Interest Rates and Net Interest Margins of Banks in Advanced Foreign Economies

Cited by 30 publications

References 0 publications

Did Interest Rates at the Zero Lower Bound Affect Lending of Commercial Banks? Evidence for the Euro Area

Did Interest Rates at the Zero Lower Bound Affect Lending of Commercial Banks? Evidence for the Euro Area

Effectiveness and Forecasting of Interest Rate Reversal BI 7-Day Repo Rate in Indonesia: Lower Bound on Monetary Policy?

Negative Interest Rate Policies: Sources and Implications

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