The nearly always wrong Christine Lagarde is wrong once again.

Today she claims Negative Rates Have Helped Europe More Than They’ve Hurt.

The next head of the European Central Bank, Christine Lagarde, appears to be as much of a fan of negative interest rates as the current chief, Mario Draghi.

European banks have complained about the impact on profitability, but even there the current managing director of the International Monetary Fund defended the move.

“On the one hand, banks may decide to pass the negative deposit rate on to depositors, lowering the interest rates the latter get on their savings,” she wrote. “On the other hand, the same depositors are also consumers, workers, and borrowers. As such they benefit from stronger economic momentum, lower unemployment and lower borrowing costs. All things considered, in the absence of the unconventional monetary policy adopted by the ECB – including the introduction of negative interest rates – euro area citizens would be, overall, worse off.”

Negative Rates Actually Cut Lending

Research shows Negative Rates Actually Cut Lending.

Central banks’ negative interest rates were supposed to increase spending, stop deflation and stimulate the economy. They may have done the exact opposite.

According to research from the University of Bath, central banks charging commercial banks to hold excess cash reserves have actually decreased lending. That’s because the additional costs reduce banks’ profit margins, leading to a drop in loan growth.

“This is a good example of unintended consequences,” said Dr. Ru Xie of the university’s School of Management, one of the study’s authors. “Negative interest rate policy has backfired, particularly in an environment where banks are already struggling with profitability.”

Xie also said that sub-zero rates appear to have acted against other unconventional forms of central bank policy, such as quantitative easing, introduced in the wake of the great recession.

Five Banks With Negative Rates

RECOMMENDED ARTICLES

Image placeholder title

Where's the Evidence Negative Rates Help?

There is no evidence negative rates produce a stronger economy or lower unemployment.

There is evidence banks are hurt.

Look at Deutsche Bank, French banks or Italian banks.

Deutsche Bank

Image placeholder title

Deutsche Bank allegedly has 1.63 trillion in assets as of June 30, 2019. The market questions those assets and so do I.

Fed vs ECB

Whereas the Fed bailed out US banks by paying interest on excess reserves, the ECB charged banks interest on excess reserves draining bank profits.

Negative interest rates unquestionably hurt EU banks and there is no evidence of Lagarde's proposed counter-benefits.

A European banking crisis awaits.

Mike "Mish" Shedlock

New ECB President, Christine Lagarde, Praises Negative Interest Rates

Christine Lagarde, the head of the IMF, will become the head of the ECB. Already, she has made a fool out of herself.

Questioning Lagarde as Gross Interest Income in Germany Heads Towards Zero

Thanks to negative interest rates, Germans interest income has plunged towards zero.

Negative Interest Rates: Have They Backfired Already?

Anyone with an ounce of common sense knows that negative interest rates cannot occur naturally, can only occur with government or central bank intervention, have nothing to do with free markets, and must fail eventually.

Negative Interest Rates Are Social Political Poison

The interest rate business model is dead. Negative interest rates killed it, with no replacement in sight.

Monetary Madness: Inverted Negative Yields in Germany, Negative Rate Mortgages

Monetary madness hit new extremes. Mortgage rates are -0.5% in Denmark. In Germany, a negative-yield curve inverts.

Negative Interest Rate Mutiny in Germany, Japan

Banks in Japan and Europe are fed up with central bank negative interest rate policies that cost the banks money.

Negative Interest Rates: Can They Ever Occur Naturally? What is the “Natural Rate”?

A question on negative interest rates has arisen in response to Negative Interest Rates: Have They Backfired Already?

ECB to Keep Negative Rates for "At Least" Another Year: Treasuries Rally

The ECB will end its asset purchase program in Dec. but will keep negative rates "at least through the summer of 2019".

BIS Study Concludes Cutting Interest Rates to Zero May Not Be Necessary

A BIS study on the Effective Lower Bound of Interest rates suggests central banks can do other things than slash rates.