Pushed Past the Limit? How Japanese Banks Reacted to Negative Interest Rates

June 13, 2018

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Format: Chicago

Gee Hee Hong, and John Kandrac. Pushed Past the Limit? How Japanese Banks Reacted to Negative Interest Rates, (USA: International Monetary Fund, 2018) accessed December 26, 2024

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

In this paper, we investigate how negative interest rate policy (NIRP) introduced in January 2016 by the Bank of Japan (BoJ) affected Japanese banks' lending and risk taking behavior. The BoJ's announcement was an unexpected surprise to the market and was followed by a sharp drop in equity prices of Japanese financial firms. We exploit the cross-sectional variation in the change of share prices on the day of the announcement to measure banks' differential exposure to NIRP. We show that more exposed banks increased their credit and took on more risk compared to banks that were less exposed to negative rates.

Subject: Asset prices, Bank deposits, Banking, Central bank policy rate, Financial institutions, Financial services, Loans, Monetary policy, Negative interest rates, Prices

Keywords: Abnormal returns, Asset growth, Asset prices, Bank control, Bank deposits, Bank risk, Bank risk taking, Bank share, Bank stock, Bank-industry credit panel, Central bank, Central bank policy rate, Global, Interest rate, Lending channel, Loans, Monetary transmission, Negative interest rates, NIRP announcement, NIRP exposure, NIRP impacts bank, Return on assets, WP

Publication Details

Pages:

50
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/131
Stock No:

WPIEA2018131
ISBN:

9781484361610
ISSN:

1018-5941

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