Monetary policy

Interest rate

Panel data

Net interest income

Real interest rate

Economics

Cross country

Computer science

Offset (computer science)

Monetary economics

Profitability index

Econometrics

Nominal interest rate

Programming language

International economics

Finance

European Economic Review

We explore the impact of negative policy rates on banks using data on 5200 banks from 27 advanced European and Asian countries, 2010–2017. Our cross-country panel specification allows us to condition on global shocks and bank-specific fixed effects. Banks offset interest income losses under negative rates with lower deposit expenses and gains in non-interest income, including fees and capital gains. Small and low deposit-ratio banks drive most results. Banks respond to negative rates by increasing lending activity and raising their share of deposit funding. Overall, our results indicate benign implications of negative rates to date for bank profitability.

Why have negative nominal interest rates had such a small effect on bank performance? Cross country evidence