Financial Times (March 22)
Many hope that negative interest rates will “encourage banks to lend more plentifully and cheaply and help support economic recovery.” This might instead prove “a dangerous experiment with diminishing positive impact.” The optimistic forecasts overlook “how financial intermediaries may actually respond.” Negative rates “erode banks’ margins. They give lenders an incentive to shrink, not grow. They encourage banks to seek out opportunities overseas rather than in their home markets. They also risk disruptions to bank funding. All go against the grain of the central banks’ desire to ease credit conditions and support financial stability.”
Tags: Banks, Credit, Dangerous, Diminishing positive impact, Economic recovery, Experiment, Financial stability, Intermediaries, Lending, Margins, Negative interest rates, Overseas
