Bank lending in a 'lower-for-longer' environment - Synchronization of lower bounds and the impact on Lending profitability

Abstract

Lowering liability costs by breaking through the lower bounds on the funding side arguably supports profitability but leaves doubt whether this results in lower, synchronised Lending rates, higher Loan growth, or improved Lending profitability. This paper reviews existing research discussing bank lending in a negative rate environment, assesses whether lower bounds across Lending, Deposit, and Leading Reference Rates have been synchronized and how this has impacted Lending profitability.