Negative interest rates, excess liquidity and retail deposits : Banks’ reaction to unconventional monetary policy in the euro area
Negative interest rate policy (NIRP) is associated with a particular friction. The remuneration ofbanks´ retail deposits tends to be floored at zero, which limits the transmission of policy rate cutsto bank funding costs. We investigate whether this friction affects banks' reactions under NIRPcompared to a standard rate cut in the euro area. We argue that reliance on retail deposit funding and the level of excess liquidity holdings may increase banks' responsiveness to NIRP. We find evidence that banks highly exposed to NIRP tend to grant more loans, i.e. NIRP is indeed expansionary. This confirms studies pointing to higher risk taking by banks under NIRP and contrasts results that associate NIRP with a contraction in bank loans. Broader coverage of our loan data and the explicit consideration of banks' excess liquidity holdings are the reasons for this different result compared to some earlier literature. We are the first to document the importance of banks' excess liquidity holdings for the effectiveness of NIRP, pointing to a strongcomplementarity of NIRP with central bank liquidity injections, e.g. via asset purchases
Year of publication: |
2020
|
---|---|
Authors: | Demiralp, Selva |
Other Persons: | Eisenschmidt, Jens (contributor) ; Vlassopoulos, Thomas (contributor) |
Publisher: |
[2020]: [S.l.] : SSRN |
Subject: | Eurozone | Euro area | Geldpolitik | Monetary policy | Wirkungsanalyse | Impact assessment | Liquidität | Liquidity | Zins | Interest rate | EU-Staaten | EU countries | Einlagengeschäft | Deposit banking | Niedrigzinspolitik | Low-interest-rate policy | Bankenliquidität | Bank liquidity | Geldpolitische Transmission | Monetary transmission |
Saved in:
freely available
Extent: | 1 Online-Ressource (65 p) |
---|---|
Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments September 24, 2020 erstellt |
Other identifiers: | 10.2139/ssrn.2941377 [DOI] |
Classification: | E43 - Determination of Interest Rates; Term Structure Interest Rates ; E52 - Monetary Policy (Targets, Instruments, and Effects) ; G11 - Portfolio Choice ; G21 - Banks; Other Depository Institutions; Mortgages |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012854473