'Negative-For-Long' Interest Rates and Customer Deposit Rate

Using the Difference-in-Differences method and data from 5115 banks located in 74 countries over 2009-2018, we investigate the effects of negative interest rate policy (NIRP) on customer deposit rate. Our results suggest that banks affected by NIRP reduced their customer deposit rate. We also show that this effect varies from country to country, especially among eurozone countries. Finally, we find that the reduction in the customer deposit rate is not immediate and that it becomes stronger as NIRP persists over time. Overall, our findings confirm that banks are reluctant to reduce customer deposit rates. However, this reluctance decreases as negative interest rates are prolonged over time.