Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data

IMF Working Papers, February 28, 2019

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Canonical URL: Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data

Authors: Margherita Bottero, Camelia Minoiu, José-Luis Peydró, Andrea Polo, Andrea F Presbitero, Enrico Sette
Published: February 28, 2019
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9781498300858.001

Study of negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy.
Research focus: whether NIRP operates through a portfolio rebalancing channel to affect credit supply and the real economy.

NIRP has expansionary effects on credit supply—and hence the real economy—through a portfolio rebalancing channel.
NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not banks with higher retail deposits.
NIRP-affected banks rebalance portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates.
By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.

Data source: administrative credit register data from Italy (country severely hit by the Eurozone crisis).
Effects observed:
- Increased lending by NIRP-affected banks.
- Reallocation toward riskier and smaller-firm lending.
- Reduction in loan rates by affected banks.
Identifying bank exposure: ex-ante net short-term interbank positions and overall liquidity indicators used to classify NIRP-affected banks.

Negative policy rates can stimulate credit supply through balance-sheet reallocation by banks with greater liquidity or net short interbank positions.
NIRP may generate sizable real effects via increased lending to smaller and riskier firms.
The mechanism differs from conventional near‑zero rate cuts because NIRP shifts the entire yield curve downward.

Authors: Margherita Bottero, Camelia Minoiu, José-Luis Peydró, Andrea Polo, Andrea F Presbitero, Enrico Sette
Date: February 28, 2019
Pages: 59
Volume: 2019
Issue: 044
Series: Working Paper No. 2019/044
DOI: https://doi.org/10.5089/9781498300858.001
ISBN: 9781498300858
ISSN: 1018-5941
Subject: Bank credit, Bank deposits, Banking, Central bank policy rate, Credit, Financial institutions, Financial services, Loans, Money
Keywords: bank asset allocation, bank characteristic, bank control variables, Bank credit, Bank deposits, bank lending channel, bank-issued securities, Central bank policy rate, Credit, credit supply, Eurozone crisis, exposure variable, liquidity management, loan growth, Loans, Negative interest rates, net interbank position, NIRP announcement, NIRP period, NIRP-affected bank, policy rate, portfolio rebalancing, risk-reward calculus, total assets, WP, yield curve

Source: IMF Working Papers — "Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data" (February 28, 2019).