Banking in a Steady State of Low Growth and Interest Rates / Qianying Chen, Mitsuru Katagiri, Jay Surti.

Format:

Book

Government document

Author/Creator:

Chen, Qianying.

Contributor:

Katagiri, Mitsuru.

Surti, Jay.

Series:

IMF Working Papers; Working Paper ; No. 2018/192

IMF Working Papers

Language:

English

Subjects (All):

Banks and banking.

Interest rates.

Economic development.

Physical Description:

1 online resource (38 pages)

Edition:

1st ed.

Place of Publication:

Washington, D.C. : International Monetary Fund, 2018.

Summary:

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.

Contents:

Cover

Contents

Abstract

I. Introduction

II. A Simple Theory of Banking in a Low-For-Long Steady State

A. Bank Balance Sheets and the Economic Environment

B. Bank Profit Maximization and Equilibrium

III. Testing the Model-Loan and Deposit Pricing in Japan

IV. Cross-Country Experience with Prolonged Low Interest Rates

A. Defining Periods of Prolonged Low Rates

B. Impact of Low-For-Long Episodes on Bank Profits

C. Impact of Changes in Expectations Regarding Low-For-Long Scenarios on Banks' Equity Values

V. Discussion

Tables

1. Estimation Result of the Error Correction Model

2. Classification of Bank Business Model

3. Impact of Low-for-long Episodes on Bank Profits: Main Results

4. Impact of Low-for-long Episodes on Bank Profits: Robustness Check

5. Impact of Changes in Expectations Regarding a Low-for-Long Scenarios on Bank Equity Price Return

Figures

1. Banking Under Low-for-Long Steady State

2. Japan: Evolution of NIMs in Normal and ZLB Equilibria

3. Japan: Banks' Adaptation to the Deposit Rate Lower Bound Period

4. Impact of Forward Rate Surprises on Bank Equity Returns

References.

Notes:

Includes bibliographical references.

Description based on publisher supplied metadata and other sources.

Description based on print version record.

ISBN:

9781484374740

1484374746

9781484374771

1484374770

OCLC:

1051139001