Negative interest rates and shadow banking

Abstract

We examine the effects of negative interest rate policy (NIRP) on the scale of shadow banking. Utilising a Triple Differences (TD) model and a cross-country dataset of 676 non-bank financial intermediaries from 28 OECD countries over the period 2011–2017, we observe a reduction in the size of shadow banking entities. Moreover, the impact of NIRP is heterogeneous based on country- and entity-specific characteristics such as inflation, entity size, and specialisation. Larger entities in moderate to high inflation environments tend to experience more significant size contractions. Our findings remain robust across various tests.