Negative rates and the death of banking

Negative interest rates turn conventional lending dynamics on their head and, bankers say, threaten the liquidity, risk and maturity transformation that lie at the heart of credit intermediation. In other words, they put the entire ethos of traditional banking in peril. Have central bankers misunderstood how the credit transmission channel works in their desperate attempts to stave off deflation?

Negative interest rates are the most honest signal yet of an unspoken market truth: central banks have formally ended the market-based system for credit allocation. Over the last seven years regulators have subsidized lending to targeted sectors – forcing bankers to allocate to favoured markets, clients and business models – and unleashed a flurry of edicts micro-managing banks’ assets and liabilities.

But a negative interest rate policy (Nirp) is a game-changer for the European banking industry.

Negative rates and the death of banking

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Negative rates and the death of banking

Thanks for your interest in Euromoney!To unlock this article:

How banks can make cybersecurity a revenue generator

Awards for Excellence Middle East and Islamic Finance winners celebrate in Dubai

Regulators should be upfront with taxpayers – and admit all deposits are guaranteed

The FX Files: Is it the end of the line for single-dealer platforms?

Thanks for your interest in Euromoney!
To unlock this article: