Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/191673
Authors: 
Urbschat, Florian
Year of Publication: 
2018
Series/Report no.: 
Munich Discussion Paper 2018-7
Abstract: 
The recent negative interest rate policy (NIRP) and quantitative easing (QE) programme by the ECB have raised concerns about the pass-through of monetary policy. On the one hand, negative rates could lead to declining bank profitability making an expansionary monetary policy contractionary. Also, if interest rates are too low for too long banks could be induced to take too much risky credit. On the other hand, several economists argue that there is nothing special about negative interest rates per se. This paper uses a large micro level data set of the German bank universe to examine how banks behave in this uncharted territory. The evidence found suggests that bank's business model, i.e. the share of overnight deposits, plays a crucial role. While some banks may benefit in the short run via for instance reduced refinancing costs or lower loan loss provisions, many banks with high deposit ratios face lower net interest income and lower credit growth rates. If continued for too long QE and NIRP erode bank profits for most banks eventually.
Subjects: 
Negative Interest Rate Policy
Banks' Profitability
Net Interest Rate Margin
Risk-Taking Channel
JEL: 
C53
E43
E52
G11
G21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
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