Here’s What Negative Interest Rates Would Do to the Community Banking Industry

October 10, 2019 | Community Banking, FinTech, Insights, News
https://dailyalts.com/wp-content/uploads/2019/10/55e7d6434a55b114a6d98074cf213576083edbe25357744c762c7f_640.jpg

NIRP would negatively impact regional and community banks that are “too small to survive.”

Negative interest rates have generated a lot of noise in Europe and Asia. What would happen if the Federal Reserve adopted negative interest rates? That was the subject of a report from Kroll Bond Rating Agency.

Banking in Fear of Negative Rates examines what would happen to banks here in the United States if we followed much of the rest of the world with negative interest rates.

Kroll believes negative interest rates here are unlikely. However, they do acknowledge the possibility that “In theory, the probability of negative interest rates has never been greater.

The report notes that interest rates in the U.S. are already the lowest they have been in modern history.

“If the Fed needs to cut them in earnest to get the country out of an actual recession, as opposed to just a slowdown in the economy, the thinking goes that it would have to cut rates to negative just to get a sufficiently stimulative effect out of the policy as a 0% rate would not be low enough.”

Negative Interest Rates in America

Meanwhile, if we did see a negative interest rate policy (NIRP)adopted the most pain would be felt by smaller regional and community banks. Kroll noted that NIRP’s long-term impact would hurt smaller banks that “hold proportionally less excess reserves with the Fed as well as Treasuries on their balance sheets compared to the larger banks.” The report further states that these financial institutions “have less capacity than their larger peers to offset the downward pressure on yields on their earning assets by repricing their funding costs lower.”

In addition, smaller banks are already struggling with low net interest rate margins and rising regulatory and technology costs. The flip side of “Too Big to Fail” is “Too Small to Survive.”

Finally, we have seen a steady rate of consolidation among the banking industry for three decades now. The number of banks has declined fromm more than 18,000 to less than 6,000 today. A Fed Policy shift toward NIRP could force smaller banks to sell to larger rivals.

By: Tim Melvin

Free Industry News

Subscribe to our free newsletter for updates and news about alternatives investments.

  • This field is for validation purposes and should be left unchanged.


Shape

Latest Alternative Investment News

https://dailyalts.com/wp-content/uploads/2020/10/new-home-2897352_640.jpg
Alternative Investments/Real Estate: Housing Market Demand Is “Insane”
October 23, 2020     Alternative Investments, News, Real Estate

Speaking to CNBC on Power Lunch, Glenn Kelman, CEO of real estate brokerage Redfin (NASDAQ: RDFN), said he expected the current boom conditions in the housing market to last well…

https://dailyalts.com/wp-content/uploads/2020/10/16858530571_a1aa50b7ab_c-Paul-tudor-Jones.jpg
Digital Assets: Paul Tudor Jones Says Bitcoin Rally In Its “First Innings”
October 23, 2020     Digital Assets, Hedge Funds, News

Paul Tudor Jones made a splash in May when he disclosed a bitcoin investment and called the cryptocurrency the fastest horse in the race against inflation. On Thursday, he was…

https://dailyalts.com/wp-content/uploads/2020/10/new-home-1664272_640.jpg
FinTech: Across The Pond, Property Finance Fintechs Report Record Business
October 23, 2020     FinTech, News, Real Estate

LendInvest, a leading property finance platform that offers short-term, development and buy-to-let mortgages to intermediaries, landlords, and developers across the UK reported a record quarter in Q3 for property bridge…

https://dailyalts.com/wp-content/uploads/2020/10/iss062e085678-SpaceX-Dragon-nasa.jpg
Venture Capital: SpaceX Is “Mission Control” For Space Economy; Long-Term Value $100B
October 23, 2020     News, Venture Capital

Analysts at Morgan Stanley (NYSE: MS) on Thursday doubled their estimated value of SpaceX, Elon Musk’s startup focused on launch rockets, satellite broadband, and (in the future) point-to-point space travel….