Banking in a Steady State of Low Growth and Interest Rates

Author/Editor:

Qianying Chen ; Mitsuru Katagiri ; Jay Surti

Publication Date:

August 27, 2018

Electronic Access:

Free Full Text. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

A prolonged low-interest-rate environment presents a significant challenge to banks and is likely to entail major changes to their business models over the long-run. Lower returns to maturity transformation in the face of flatter yield curves and an inability to offer deposit rates significantly below zero combine to compress bank earnings in this environment. Smaller, deposit-funded, less diversified banks are hurt most, increasing consolidation pressures and reach-for-yield incentives, presenting new financial stability challenges.To the extent that such an economic environment reflects a new, steady-state with lower equilibrium growth driven by population aging and slower productivity growth, lower credit demand is likely to drive banking toward provision of fee-based, utility services.

Series:

Working Paper No. 18/192

Subject:

English

Publication Date:

August 27, 2018

ISBN/ISSN:

9781484373873/1018-5941

Stock No:

WPIEA2018192

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

37

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