Low Interest Rates and Banks Profitability: Update – December 2016

Low Interest Rates and Banks Profitability: Update – December 2016

 

This post is an update to my previous post published in May 2016.  You can access it below.

Impact of Low Interest Rates on Bank’s Profitability

There have been several developments in this research area since my post.  I list them below.

 

Sources of Research:

BIS Annual Report released in 2015 discussed causes and concequenses of Persistent Low Interest rates.

BIS Annual Report 2014-15

 

IMF released Global Financial Stability Report in October 2016 which discussed in Chapter 1 causes and effects of Low interest rates.

Global Financial Stability Report October 2016

 

The Office of Financial Research of the USA Department of Treasury released its Annual report 2015 in which it warned of impact of low interest rates on Banks and other financial Institutions.

US Office of Financial Research Annual Report 2015

 

European Central bank released its Financial Stability Review report in November 2016 in which low interest rates environment was discussed.

ECB Financial Stability Review November 2016

 

Deutsche bank had issued its research note in 2013 detailing how Japanese Financial Institutions have coped with Low Interest Rates Environment.

Deutche Bank Research: Ultra Low Interest Rates: How Japanese Banks have coped?

 

Deutsche bank had issued its research note in 2012 on how low interest rates are pressuring US banks net interest margins.

DB Research: Low Interest rates Pressuring US Banks Margins

 

Stanley Fischer Vice Chairman of Federal Reserve Board gave his remarks recently on the Long Term Challenges for the US Economy in which he commented on impact of low interest rates on financial stability.

FRB/Stan Fischer: Longer-Term Challenges for the U.S. Economy

 

Stanley Fischer Vice Chairman of Federal Reserve Board gave his remarks recently on the causes of Low interest rates and Implications.

FRB/Stan Fischer: Why Are Interest Rates So Low? Causes and Implications

 

Stanley Fischer Vice Chairman of Federal Reserve Board gave his remarks recently on the Low interest rates.

FRB/Stan Fischer: Low Interest Rates

 

Riksbank of Sweden published paper on how do low and negative interest rates affect banks’ profitability.

MONETARY POLICY REPORT APRIL 2016

To push inflation up, the Riksbank and several other central banks have introduced negative interest rates. Critics say that negative rates counteract their purpose in that they are said to squeeze banks’ profitability, which could then lead to higher lending rates and lower credit supply. This discussion has arisen in the euro area in particular, where banks are already burdened with low profitability. The Riksbank’s assessment is that the overall effect of negative interest rates on banks’ profitability is limited and may even be positive, and that the function of Swedish banks in the monetary policy transmission mechanism is maintained even at a negative policy rate level.

Riksbank/Sweden: How do low and negative interest rates affect banks’ profitability?

 

Central Bank of Columbia has recently published article

The risks of low interest rates

Leonardo Gambacorta

 

The risks of low interest rates

 

European Parliament’s Committee on Economic and Monetary Affairs.

Karl Whelan, University College Dublin

The ECB’s QE announcement has made it clear they intend to keep interest rates in the euro area at very low levels for a long period of time. This policy should help to boost economic growth and move inflation back towards the ECB’s target. However, every economic policy produces winners and losers and certain sectors of the economy will be negatively affected by this policy. This paper presents evidence on sectoral balance sheets and household asset holdings to explain how low interest rates affect various groups. It also discusses the impact a prolonged period of low interest rates has on different types of financial institutions. The paper concludes that, at present, the risks of low interest rates provoking a new financial crisis are low.

Low Interest Rates and Financial Stability

 

Interesting Blog on Bruegel

Eurozone QE and bank profitability: Why it is too early to taper

In the eyes of the critics, the quantitative easing programs have been of little help to growth and inflation and have instead been an attack on savers, undermining the profitability of banks and insurances. Do these arguments stand scrutiny?

Eurozone QE and bank profitability: Why it is too early to taper

 

Interesting Blog on Bruegel

What impact does the ECB’s quantitative easing policy have on bank profitability?

This Policy Contribution shows that the effect of the ECB’s QE programme on bank profitability has not yet had a dramatically negative effect on bank operations.

What impact does the ECB’s quantitative easing policy have on bank profitability?

 

At the first ECB ESRB ( European Systemic Risk Board) conference Elena Carletti gave a overview of the work of the task force on Low Interest Rates and Financial Stability.

September 2016

Low interest rates and implications for financial stability – A discussion

 

See the Youtube video of conference presentations at the ECB/ESRB on Low Interest Rates and Implications for Financial Stability.

ECB: First ESRB annual conference – Low interest rates and the implications of financial stability

 

See Youtube video of Welcome Address by Mario Draghi, Chair of the ESRB

ECB: First ESRB annual conference – Welcome address: Mario Draghi, Chair of the ESRB

 

ECB/ESRB Taskforce report on Macro-prudential Policy issues arising from Low Interest rates and Structural changes in the EU Financial System.

November 28, 2016

ECB/ESRB: Macro prudential Policy Issues Arising from Low Interest Rates and Structural Changes in the EU Financial System

 

ECB/ESRB Taskforce report on Macro-prudential Policy issues arising from Low Interest rates and Structural changes in the EU Financial System.

There are several Annex of the report which can be downloaded from the link below.

The ESRB publishes a report on the macroprudential policy issues arising from low interest rates and structural changes in the EU financial system

 

Mario Draghi gave his remarks at the EU Parliament about the work of ESRB and the Taskforce report.

November 28, 2016

Introductory statement by Mario Draghi, Chair of the ESRB, Brussels, 28 November 2016

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Author: Mayank Chaturvedi

You can contact me using this email mchatur at the rate of AOL.COM. My professional profile is on Linkedin.com.

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