Bank Lending and Asset Holding
Friday, Jan. 4, 2019 2:30 PM - 4:30 PM
- Chair: Wilko Bolt, De Nederslandsche Bank
Adapting Lending Policies when Negative Interest Rates Hit Banks’ Profits
AbstractWhat is the impact of negative interest rates on bank lending and risk-taking? To answer this question we study the changes in lending policies using the Euro area Bank Lending Survey and the Spanish Credit Register. Banks whose net interest income is adversely affected by negative rates are concurrently lowly capitalized, take less risk and adjust loan terms and conditions to shore up their risk weighted assets and capitalization. These banks also increase non-interest charges more. Importantly, we find no differences in banks’ credit supply and credit standard setting, neither in Euro area nor in Spain, suggesting that negative rates do not necessarily contract the supply of credit, which can be interpreted in the sense that the so-called “reversal rate” has not been reached yet.
Negative Monetary Policy Rates: Evidence from the Credit Register of a Crisis Country
AbstractWe study negative interest rate policy (NIRP) exploiting ECB’s NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply and the economy through a portfolio rebalancing channel. NIRP affects banks with
ex-ante higher net short-term interbank position and, more broadly, higher liquid holdings, not with higher retail deposits. NIRP-affected banks reduce liquid assets and expand credit supply—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting
the entire yield curve downwards, NIRP differs from previous rate cuts.
”BREXIT” and the Contraction of Syndicated Lending
AbstractUsing the syndicated loan market as a laboratory, we analyze the effect of the Brexit referendum on corporate loan origination. Issuances in the UK syndicated loan market drop by 15% after the Brexit referendum relative to a set of comparable syndicated loan markets. We propose a new matching strategy – “Siamese Twins Matching” – to identify appropriate counterfactuals for the UK market. We further analyze a novel channel, market attractiveness: firm-bank combinations that used to issue loans in both the UK market and other markets do not decrease their issuances in the UK market more than in other markets after the Brexit referendum – suggesting that the UK market did not significantly lose attractiveness relative to other international markets. We also document a strong decrease in the issuance of British pounds denominated loans after the Brexit for the same firm-bank combinations. Our results help to understand the dynamics of competition between financial centers and the role of policy uncertainty shocks in this competition.
- G2 - Financial Institutions and Services