by Mike ‘Mish’ Shedlock
ECB Punishes Banks With Negative Interest Rates
Do extended periods of negative policy interest rates continue to encourage commercial bank lending? A large panel of European and Japanese banks provides evidence on the impact of negative rates over different lengths of time.
Analysis suggests that both bank profitability and bank lending activity erode more the longer such negative policy rates continue, primarily due to banks’ reluctance to pass negative rates along to retail depositors. This appears to negate one of the main arguments for moving policy rates below the zero bound.