Life below zero: Bank lending under negative policy rates
Event details
| Date | 10.02.2017 |
| Hour | 10:30 › 12:00 |
| Speaker | Florian HEIDER (European Central Bank) |
| Location | |
| Category | Conferences - Seminars |
We show that negative policy rates transmit to the real sector via bank lending in a novel way. The European Central Bank's introduction of negative rates in June 2014 induces banks with more deposits to concentrate their lending on riskier borrowers. A one-standard-deviation increase in banks' deposit ratio leads to the financing of firms with 16% higher return-on-assets volatility and to a reduction in lending of 9%. Conversely, a placebo at the time when policy rates fall, but are still non-negative, shows no effect. New risky borrowers appear financially constrained, come from industries known to the bank, and invest more after receiving a loan. Banks do not adjust loan terms, and the risk taking is concentrated in poorly capitalized banks. Besides highlighting the role of banks' funding structure for monetary-policy transmission, our results point to distributional consequences with potential risks to financial stability.
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