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Pushed Past the Limit? How Japanese Banks Reacted to Negative Interest Rates
Author:
Mr. Gee Hee Hong null

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John Kandrac null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 131
Language:
English
Publication Date:
13 Jun 2018
DOI:
https://doi.org/10.5089/9781484361610.001
ISBN:
9781484361610
ISSN:
1018-5941
Pages:
50
Keywords:
WP; central bank; interest rate; NIRP announcement; bank control; Negative interest rates; monetary transmission; bank risk taking; lending channel; asset growth; bank risk; NIRP impacts bank; bank-industry credit panel; bank share; NIRP exposure; abnormal returns; return on assets; bank stock; Asset prices; Loans; Central bank policy rate; Bank deposits; Global
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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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund