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|Title||Negative Interest Rates and Bank Profitability: Theory and Evidence|
|Institution||University of Zurich|
|Faculty||Faculty of Business, Economics and Informatics|
|Abstract Text||This paper investigates how monetary policies which use negative interest rates as instrument affect bank credit supply and profitability. We use data for 48 large international banks in 7 major advanced economies for the period 2012-2016 . Overall, we find a positive relationship between the introduction of negative interest rates and credit supply on one hand, and a negative relationship between interest rates and bank profitability – return on average assets, return on average equity and net interest margin – on the other hand. This suggests that the negative impact of decreasing interest rates on profitability dominates the positive one induced by an increase of credit supply.|