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

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  • GEE HEE HONG
  • JOHN KANDRAC

Abstract

We investigate how the surprise introduction of negative interest rate policy (NIRP) in Japan affected banks' lending and risk‐taking behavior. Equity prices of Japanese financial firms fell sharply despite the accommodative policy, and we document the characteristics that heighten Japanese banks' exposure to NIRP. We exploit the cross‐sectional variation in the change of share prices around the announcement to measure banks' differential exposure to NIRP. Consistent with the risk taking channel, we find that more exposed banks insulated their profits from the adverse effects of NIRP by boosting risk‐taking behavior and increasing credit supply relative to less exposed banks.

Suggested Citation

  • Gee Hee Hong & John Kandrac, 2022. "Pushed Past the Limit? How Japanese Banks Reacted to Negative Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(4), pages 1027-1063, June.
    • Handle: RePEc:wly:jmoncb:v:54:y:2022:i:4:p:1027-1063
    DOI: 10.1111/jmcb.12843
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    References listed on IDEAS

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    2. Grandi, Pietro & Guille, Marianne, 2023. "Banks, deposit rigidity and negative rates," Journal of International Money and Finance, Elsevier, vol. 133(C).

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