Detrimental charges, financial coverage transmission and cross-border lending through worldwide monetary centres

Crew of 12 economists (Desislava Andreeva, Andra Coman, Mary Everett, Maren Froemel, Kelvin Ho, Simon Lloyd, Baptiste Meunier, Justine Pedrono, Dennis Reinhardt, Andrew Wong, Eric Wong and Dawid Żochowski) in this Bank of England paper:

We examine the consequences of damaging rate of interest insurance policies (NIRP) on the transmission of financial coverage by means of cross-border lending. Utilizing bank-level knowledge from worldwide monetary centres (IFCs) – the UK, Hong Kong and Eire – we look at how NIRP within the economies the place banks have their headquarters influences cross-border lending from financial-centre associates. We discover that NIRP impairs the bank-lending channel for cross‑border lending to non-bank sectors, particularly for these banks which have solely a weak deposit base in IFCs – and are thus comparatively extra uncovered to NIRP of their headquarters. Utilizing euro-area knowledge, together with bank-level knowledge from France, we discover that NIRP doesn’t affect general cross-border lending from banks’ headquarters’ economies, however NIRP does impair lending to monetary sectors based mostly in IFCs. This impairment is stronger for banks with a big deposit base in headquarter economies uncovered to NIRP.

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