Full document

Abstract

We study the impact of negative interest rates on banks’ lending and risk-taking using a large sample of euro banks and their individual answers to the Bank Lending Survey (BLS). We find that 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 capital ratios. These banks also increase non-interest charges more. But, importantly, we find no differences in banks’ credit supply neither in the Euro area nor in Spain. These findings suggest that negative interest rates, while they may erode banks’ unit lending margins, do not necessarily lead to lower volume of supplied credit.