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Banking in a Steady State of Low Growth and Interest Rates
Author:
Qianying Chen null

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Mitsuru Katagiri null

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Jay Surti null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 192
Language:
English
Publication Date:
27 Aug 2018
DOI:
https://doi.org/10.5089/9781484373873.001
ISBN:
9781484373873
ISSN:
1018-5941
Pages:
37
Keywords:
WP; rate of interest; economic growth; balance sheet; bond yield; business line; monetary policy; Banking; Growth; Interest Rates; Low-for-Long; Prolonged Low Interest Rates; bank characteristic; bank equity; adaptation strategy; transaction service; bank NIMs; bank leverage; bank profits; market rate; interest rate cut; bank business; interest rate shock; Deposit rates; Market interest rates; Zero lower bound; Stocks; Bank soundness; Global
Legal-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.
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A prolonged low-interest-rate environment presents a significant challenge to banks and is likely to entail major changes to their business models over the long-run. Lower returns to maturity transformation in the face of flatter yield curves and an inability to offer deposit rates significantly below zero combine to compress bank earnings in this environment. Smaller, deposit-funded, less diversified banks are hurt most, increasing consolidation pressures and reach-for-yield incentives, presenting new financial stability challenges.To the extent that such an economic environment reflects a new, steady-state with lower equilibrium growth driven by population aging and slower productivity growth, lower credit demand is likely to drive banking toward provision of fee-based, utility services.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund