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Negative Nominal Interest Rates on Loans: The Newly-Established Normal Practice?

Author

Listed:
  • Petar Peshev

    (University of National and World Economy, Sofia, Bulgaria)

  • Ivaylo Beev

    (University of National and World Economy, Sofia, Bulgaria)

Abstract

The purpose of this article is to initiate a discussion about the central banks’ policy of negative interest rates and its impact on commercial banks’ lending and the bank business model respectively. Recently Bank of Japan joined ECB, Riksbank, Swiss National Bank and Danmarks National Bank in introducing negative interest rates on excess reserves. Extremely accommodative monetary policy of central banks in some of the developed states and economic areas, accompanied by expanding government spending led the world in undiscovered economic reality. Deflation is casting its shadow on developed economies and the rise of bank liabilities is not transmitted into new lending for a healthier economic recovery to evolve. Does the newly established normal practice encompass negative yields on short- and long-term debt, negative interest rates on large private deposits, and even negative interest rates on loans to the private sector? We argue that even with negative nominal lending rates commercial banks still can maintain a viable business model.

Suggested Citation

  • Petar Peshev & Ivaylo Beev, 2016. "Negative Nominal Interest Rates on Loans: The Newly-Established Normal Practice?," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 2, pages 149-158, June.
    • Handle: RePEc:nwe:eajour:y:2016:i:2:p:149-158
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    References listed on IDEAS

    as
    1. Petar Peshev, 2015. "Modelling the demand and supply of loans in Bulgaria," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 52-69,70-85.
    2. Hyman P. Minsky, 1992. "The Financial Instability Hypothesis," Economics Working Paper Archive wp_74, Levy Economics Institute.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Petar Peshev & Statty Stattev & Kristina Stefanova & Meglena Lazarova, 2019. "Financial Wealth Inequality Drivers in a Small EU Member Country: An Example from Bulgaria during the Period 2005-2017," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 41-72.
    2. Simona Malovaná & Josef Bajzík & Dominika Ehrenbergerová & Jan Janků, 2023. "A prolonged period of low interest rates in Europe: Unintended consequences," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 526-572, April.

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    More about this item

    Keywords

    monetary policy; Negative interest rates; Accommodative policy; Quantitative easing; Central banks; ECB; BOJ; SNB; Riksbank;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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