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Manchester Grand Hyatt, Seaport C
American Finance Association
Banks and Monetary Policy Transmission
Sunday, Jan. 5, 2020 8:00 AM - 10:00 AM (PDT)
- Chair: David Thesmar, Massachusetts Institute of Technology
Is There a Zero Lower Bound? The Effects of Negative Policy Rates on Banks and Firms
AbstractExploiting confidential data from the euro area, we show that banks can pass negative rates on to their corporate depositors, without experiencing a contraction in funding, especially if they are sound. The effects of the negative interest rate policy (NIRP) become stronger as policy rates move deeper into negative territory. Banks offering negative rates provide more credit than other banks suggesting that the transmission mechanism of monetary policy is not hampered. The NIRP provides further stimulus to the economy through firms’ asset rebalancing. Firms with high current assets at banks offering negative rates appear to increase their investment in tangible and intangible assets and to decrease their cash-holdings to avoid the costs associated with negative rates. Overall, our results challenge the commonly held view that conventional monetary policy becomes ineffective when policy rates reach the zero lower bound.
Nonbanks, Banks, and Monetary Policy: United States Loan-Level Evidence Since the 1990s
AbstractWe analyze the effects of monetary policy on banks and nonbank lending to corporations and households since the 1990s. Exploiting U.S. monetary policy shocks and loan-level data, we find that after a one standard deviation contractionary monetary policy shock nonbank credit supply expands relative to bank credit supply by 12 percent in the corporate loan market and by 10 percent in the consumer loan and mortgage markets. The effects are stronger for ex-ante riskier loans. However, overall substitution in corporate loan and mortgage markets is limited due to demand factors. In the consumer credit market, the nonbank credit expansion completely offsets the retrenchment by banks. Our results show that nonbank lenders significantly attenuate the bank lending and risk-taking channels of monetary policy.
University of Pennsylvania
European Central Bank
University of Chicago
- G2 - Financial Institutions and Services