How Do Low and Negative Interest Rates Affect Banks?

Lofton, Olivia; Ulate, Mauricio

Journal Article

How Do Low and Negative Interest Rates Affect Banks?

Abstract: Developed countries have recently turned to very low—even negative—interest rates to try to stimulate their economies. Low or negative rates can affect banks in novel ways because they often base their retail rates on the policy rate. In particular, the rate banks pay households for deposits usually remains at zero during times of low or negative policy rates, rather than falling together with the policy rate, as it would during normal times. This can decrease banks’ net interest margins, negatively impacting their profitability, equity, and ability to lend.

Keywords: Interest rates;