Are low interest rates firing back? Interest rate risk in the banking book and bank lending in a rising interest rate environment

摘要

We match granular supervisory and credit register data to examine the role of banks’ exposure to interest rate risk in the transmission of monetary policy to bank lending in the euro area. Exploiting the steepest and fastest rate hikes since the inception of the euro, we find that banks with larger net duration gaps - after accounting for hedging - cut corporate lending more and rebalance their portfolios away from longer-term, fixed-rate loans. This occurs as these banks anticipate weaker medium-term profitability and capital growth. Firms borrowing from these banks cannot fully substitute credit to other banks, resulting in a stronger overall contraction in borrowing. This reduction is especially strong for firms that are smaller, more risky, and have less bank relationships.