One size fits all? Effects of the zero lower bound on bank lending across countries

Abstract

This paper documents significant cross-country heterogeneity in the effects of negative policy rates on bank lending. When policy rates go negative, high-deposit banks decrease loan extension relative to low-deposit ones, but only in countries where deposit rates were already close to the zero lower bound before the introduction of negative policy rates. In countries where deposit rates were higher, no contractionary effect is found. Previous studies, which treat all euro area countries as one entity, are likely to underestimate the true effect of negative rates on bank lending.