Spread the Word: International Spillovers from Central Bank Communication

Hanna Armelius, Christoph Bertsch, Isaiah Hull and Xin Zhang in this BIS Working Paper:

We construct a novel text dataset to measure the sentiment component of communications for 23 central banks over the 2002-2017 period. Our analysis yields three results. First, comovement in sentiment across central banks is not reducible to trade or financial flow exposures. Second, sentiment shocks generate cross-country spillovers in sentiment, policy rates, and macroeconomic variables; and the Fed appears to be a uniquely influential generator of such spillovers, even among prominent central banks. And third, geographic distance is a robust and economically significant determinant of comovement in central bank sentiment, while shared language and colonial ties have weaker predictive power.

Fiscal stabilisation in monetary unions

Plamen Nikolov and Paolo Pasimeni in this piece:

In the EMU fiscal transfers are constrained by the lack of a political union, but we find that fiscal stabilisation through a common budget is relevant in a monetary union. There is a case for addressing both common and asymmetric shocks, but the instruments we choose will have different capacities to address these stabilisation needs. 

The design of the budget, in particular the balance of revenue and expenditure, can maximise its stabilisation effect. The key is to bridge the gap between higher mobility of capital and lower mobility of labour, by collecting revenues based on the income of the most mobile factor (corporate income tax) and providing support to the income of the least mobile factor (social security).

A discretionary program of extended unemployment benefits, mainly funded by the federal level and supported by the borrowing capacity of the federal government, proves a powerful example of a timely and effective stabilisation instrument when we require a specific, contingent stabilisation function.

Hmm..But how to have a common budget?

Time for e-Euro?

I have just recently written for Moneycontrol on how European central bankers particularly French are really keen on introducing a central bank digital currency.

Christine Lagarde (who is French!), recently appointed at helm of ECB in her first hearing at the European Parliament interestingly spoke on CBDC:

The other topic you have asked me to discuss today is the future of money. Indeed, as central banks navigate a complex and changing landscape, we should not only aim to anticipate future trends, but also seek to shape them. In doing so, we should be particularly attentive to risks and perform a thorough analysis of their costs and benefits.

…..

A central bank digital currency would allow citizens to use central bank money directly in their daily transactions. However, depending on its design, a central bank digital currency could pose risks. For instance, they could alter the way in which monetary policy is conducted and transmitted to the real economy. They could also carry implications for the functioning of the global financial system and its stability. The question of central bank digital currencies and their optimal design therefore warrants further analysis.

Our ultimate goal is to foster safer, innovative and integrated payments in euro. This will in turn benefit everyone in the euro area and strengthen the euro internationally.

François Veilleroy De Galhau of Banque De France in a recent speech (4 Dec 2019), gave a more detailed speech on CBDC:

I shall turn now to a topic that is a major challenge for the future of the international monetary and financial system: the possible creation of a central bank digital currency (CBDC). The creation of a new form of currency by central banks goes beyond the challenges I have just mentioned: it is neither a precondition for nor a guarantee of more efficient payments. However, we as central banks must and want to take up this call for innovation at a time when private initiatives – especially payments between financial players – and technologies are accelerating, and public and political demand is increasing. Other countries have paved the way; it is now up to us to play our part, both ambitiously and methodically.

To this end, the Banque de France is to be reorganised. The current Direction de la surveillance des paiements et des infrastructures de marché (DSPM – Payments and Market Infrastructures Oversight Directorate) will become the Direction des infrastructures, de l’innovation et des paiements (DIIP – Infrastructure, Innovation and Payments Directorate), and its scope will be extended to cover all payment innovations, infrastructures and central bank digital currency. Additional skills will be recruited to strengthen its expertise, and, with the help of our Lab, the DIIP will work with industry innovators from the private sector: we want to start running experiments rapidly and will launch a call for projects before the end of the first quarter of 2020. We are particularly keen to take part in experiments to integrate a “wholesale” CBDC into innovative procedures for exchanging and settling tokenised financial assets. Nathalie Aufauvre, Director General of Financial Stability and Operations, will coordinate the Banque de France’s acceleration process. Our actions will naturally contribute to the work of the Eurosystem, which should make looking into the possibility of an “e-euro” one of its next focuses: Christine Lagarde referred to it on Monday in front of the European Parliament. Beyond this, we intend to take part in the work of the “innovation hub” recently created by the BIS.

On a substantive level, I would like to share with you some first thoughts – which are still open to discussion, of course – on three aspects: the objectives, externalities and possible modalities of a central bank digital currency.

1/ At this stage, I can see three different – but not mutually exclusive – objectives for digitalising central bank currency. The first relates to the desire, in countries such as Sweden where cash use is declining rapidly, to guarantee all citizens access to central bank money. A CBDC would help to preserve the trust in the financial system that stems in part from being able to exchange assets for legal tender. The second argument relates to the efficiency gains, reduced intermediation costs and resilience that would potentially result from the “tokenisation” of a central bank currency, especially in settlement and post-trade activities (which is also one of the objectives of JP Morgan’s JPM Coin project). The third and final reason – and the most important one for political authorities, including in France and Europe – is that creating a CBDC would give us a powerful lever with which to assert our sovereignty in the face of private-sector initiatives such as Libra. This is also one of the concerns highlighted by the People’s Bank of China with its Digital Currency Electronic Payment (DCEP) project.

In this context, what form should our CBDC take? Public expectations on this differ significantly from those of financial institutions. As a result, in the long term, two different uses of the CBDC could exist side by side: one for payments between financial sector players (a so-called “wholesale” currency) that uses blockchain technology and all its possibilities, notably smart contracts; and another for the general public (a so-called “retail” currency) that is simpler and better suited to retail transactions. In this respect, financial institutions are much more digitally mature than private individuals as they already access central bank currency digitally via the bank accounts they hold with the central bank. In addition, following on from the questions raised by the Governor of the Bank of England, Mark Carney, on the idea of creating an international digital currency in response to the dominance of the US dollar, I think there would be some advantage in moving rapidly to issue at least a wholesale CBDC, as we would be the first such issuer in the world and would thus reap the benefits of having a benchmark CBDC.

2/ The issuance of a CBDC can generate significant positive externalities by increasing the productivity of the financial sector and by extension the economy, and by shoring up confidence in the currency and in the financial system. But, in parallel, it is vital that we examine the potentially negative externalities that a CBDC could generate for liquidity, profitability and bank intermediation. In particular, we need to look very closely at the risks linked to large-scale and/or sudden conversions of bank deposits into central bank money.

3/ The third aspect is the modalities that could be used to circulate the CBDC, especially the “retail” version, about which we need to be particularly vigilant. I’m thinking about the issue of its legal tender status – which is not indispensable but probable; the conditions under which it can be held – in the form of accounts rather than tokens; and last, whether non-residents will have access to it, which would certainly help to raise its international status. Moreover, thanks to their proven expertise in payment instruments, know-your customer requirements and transaction monitoring, financial intermediaries will be able to play a front-line surveillance role in the distribution of the CBDC. In parallel, we will also need to launch a reflection to define the conditions under which the CBDC could circulate anonymously “from person to person”. Limits could be set for the size of anonymous transactions, such as those already applicable in France for e-money and cash payments.

Hmm..

Inflation trends in Asia: implications for central banks

Juan Angel Garcia and Aubrey Poon in this paper:

Trend inflation estimates for 12 of the largest Asian economies over 1995-2018 o§er important insights on inflation dynamics and inflation expectations. The disinflationary shocks that hit the region since 2014 were partly transitory, but their effects have been different depending on the behaviour of trend inflation in each country. Countries with relatively high inflation (India, Philippines, Indonesia) benefited, and some were impacted very mildly (China, Taiwan, Hong Kong SAR, Malaysia). Among countries with inflation below target, in those with trend inflation low but constant (Australia, New Zealand) low inflation maybe lasting, but temporary, while those in which trend ináation has declined (South Korea, Thailand) risk low inflation to become entrenched and a de-anchoring of expectations. This diverse international evidence could offer important lessons for monetary policy worldwide.

Hmm..

Germany’s most famous financial export: Pfandbrief’s (covered bond) 250th anniversary..

I did blog about the 250th anniversary of Pfandbrief earlier. Pfandbrief means bonds in German and is basically a covered bond.

On the website of German Pfandbrief Banks, these bonds are called as German’s top financial export:

In the course of its 250-year history, the Pfandbrief has evolved into one of Germany’s top financial exports and is rightly regarded as playing a leading role in shaping the European covered bond market. The Pfandbrief has also had a significant impact on Germany’s long-term culture in the financing of real estate and local authorities, and has since established itself as an indispensable element of the strategic refinancing mix within the banking industry. A brief and concise overview of the various milestones in the history of the Pfandbrief can be found here.

In a recent speech, Jens Weidmann of Bundesbank gives a speech to commemorate the occasion. Title of his speech: Consistency as a mandate as Pfandbriefs have consistently helped finance multiple projects nit just in Germany but across the world too:

Boredom is less desirable for a festive occasion such as this, but all the more so for Friedrich Nietzsche, to whom boredom was a precondition for original thought and productive action.[2]

Central bankers do not find boring to be all that bad, either. As former Bank of England governor Mervyn King used to put it, “boring is best”. With a view to predictable monetary policy, he explained that “a successful central bank should be boring”.[3]

As regards the Pfandbrief, a reputation for being boring is at once a compliment and a seal of confidence. Once money is put on the table, many lose their lust for adventure.

What makes these bonds tick?

Let me begin with this question: what is the recipe for the success that the Pfandbrief has enjoyed over such a long life?

Its unique selling point is undoubtedly its high level of security: Pfandbrief holders enjoy two layers of protection against default. That is like circus acrobats who are protected by a net and a safety line – or someone who wears both a belt and suspenders.

Not only is the issuer liable, but the Pfandbrief is also covered by a pool of assets subject to statutory quality standards and conservative measures of value. If the issuer becomes insolvent, the Pfandbrief holders have the right to the cover pool, access to which is denied the other creditors.

This double layer of protection comes with a further advantage: as the cover assets remain on the issuer’s balance sheet, it is in the issuer’s own best interest to avoid a creditor default and to handle risk-relevant information carefully. Experts refer to this as having “skin in the game”.[4] The expression illustrates that, in the event of a default, the issuer will not get away with his skin intact.

This mitigates the moral hazard of issuing loans without performing due diligence on clients and sufficiently monitoring them. This incentive problem is often seen as one of the factors leading to the onset of the sub-prime crisis in the United States.[5] Pfandbriefe can therefore make an important contribution to financial stability. On the other hand, it is also possible that, in extremis, the issuance of covered bonds can get out of hand.

What is good for the Pfandbrief holder can put the other creditors of a bank at a disadvantage: the more covered bonds an institution issues, the more collateral is set aside to cover them – and the smaller the quantity of unencumbered assets available to cover the rest of the bank’s creditors.[6]

Such asset encumbrance must always be kept in mind. This is why transparency is decisive, and institutions are required to disclose their holdings of encumbered assets. However, the Bundesbank does not believe that regulatory intervention, such as by setting a cap on asset encumbrance, is necessary.

What the topic shows us is this: the security of the Pfandbrief is not necessarily identical to the security of the issuer. And, during the financial crisis, individual issuers did, in fact, encounter severe distress. This was due, not least, to attempts to use short-term funds to finance long-term business. However, not a single Pfandbrief defaulted. This is why Jean-Claude Juncker has found that “[c]overed bonds have proved themselves to be a reliable and stable form of financing, particularly during the financial crisis”.[7]

Hmm..

He also talks about Grüner (Green) Pfandbriefs:

Risks, interactions and keeping sight of the big picture are critical factors when it comes to another topic, too: climate change. When Alexander von Humboldt witnessed the environmental damage caused by plantations on his travels in Venezuela, he was able to join the dots and warned of the human impact on the environment and its consequences for future generations. In particular, he noted the important role played by the forest in cooling the air, storing water and protecting against soil erosion.[13]

Climate change is a challenge that we all face. Christine Lagarde, President of the ECB, has said that all public and private institutions should act, within their mandates, to address it.[14]

The first “Grüner Pfandbrief” was issued back in 2015, even before the Paris Agreement was signed. Without wanting to flatter, it is now safe to say that this product innovation, which was designed to finance energy-efficient buildings, was a little ahead of its time.

The green bond market as a whole can make a substantial contribution to financing environmentally friendly projects. In Germany, sustainable investment has risen by over 70% in the past four years. What is more, strong market growth can be observed globally as well.[15] And yet the role played by green finance remains fairly small. Green bonds account for only just 2% of the international market as a whole. In other words, green finance probably still has considerable potential.

A key requirement here is a clear, generally accepted definition of what “green” and “sustainable” actually mean. This could also strengthen confidence in green finance, as it would counteract the effect of “greenwashing”. What this means is that a financial product is, for example, marketed as being green without actually being environmentally friendly.

A variety of standards and principles aimed at preventing such deceptive labelling and providing investors with clarity already exist. Expanding on this, the European Commission is currently working on its own classification system. This taxonomy will make it possible to classify sustainable financial products in a way that is uniform, clear and reliable. It is the centrepiece of the EU’s Sustainable Finance Action Plan and is intended to serve as a reference framework for investors so that Europe can reach the climate goals set as part of the Paris Agreement.

More here on the Banks website

Nice speech giving a glimpse of history of financial instruments..

Three papers discussing the stormy birth of “Europe”:

Joseph Halevi of INET has written three interesting papers on Europe.

He explains these papers in this post:

hese three INET Working Papers analyze the gradual emergence of the European Union and its monetary systems through early years of the introduction of the Euro. Their point of departure is the crucial role oligopoly plays in the evolution of modern capitalist economies and the dominating influence of the principle of effective demand in the dynamics of these systems.

These factors, though, cannot be understood apart from specific institutional and political conditions not simply in relation to fiscal and monetary policies but, and especially, in relation to the context of the international relations ruling in any given period. Arrangements that would have been conceptually and politically all but unthinkable prior to 1945 became the main pillars of Western Europe’s recovery undertaken under the aegis of the United Sates: The Marshall Plan, the creation of the European Payments Union, and the London Conference of 1953 leading to the drastic reduction of the German debt. In each of these the external factor, i.e., the balance of payments positions of the countries concerned took center stage. The balance of payments issue encapsulated the question of effective demand since for virtually all the Western European countries, including the Federal Republic of Germany, overcoming the external constraint by getting a slice of external demand, became the necessary condition for the expansion of investment in the domestic economy.

 

What drives interest rates? Central bank policy rates or something else?

Òscar Jordà and Alan M. Taylor in this short paper look at evidence from Japan, Germany, the United Kingdom, and the United States.

People generally attribute a great deal of discretion to a central bank’s ability to set interest rates. This might be an overstatement. Our analysis suggests that most of the variation in interest rates can be explained by conditions beyond the central bank’s control: the aging of the population, declining rates of productivity growth, and other slow-moving factors known to affect the neutral rate of interest globally and domestically. From this perspective, fears that policy stances are increasingly diverging across advanced economies and that this divergence may have adverse consequences for the international financial system may be overblown.

Hmm..

Should Bulgaria abandon its Currency Board and join the Euro?

Prof Steve Hanke , has been a long time advocate of currency boards.

In this paper, he along with Todor Tanev argue that Bulgaria should not abandon its currency board…

 

Financial technology: the 150-year revolution

Pablo Hernández de Cos Chairman of the Basel Committee on Banking Supervision and Governor of the Bank of Spain gives this nice speech.

The past few years have seen growing interest in technology-driven innovation in financial services.

………………

Yet finance and technology have a long and symbiotic relationship. Finance has always shaped technological developments. For example, the Industrial Revolution was facilitated by the provision of capital provided by financial intermediaries in the 18th and 19th centuries.  And technology has been used in finance for over 150 years. As Douglas Arner of the University of Hong Kong and his colleagues have catalogued, one can think of three waves of technological disruptions in finance.4 The first wave of technology (“fintech 1.0”) was prompted by the completion of the first transatlantic telegraph cable in 1866 and saw finance gradually shift from analogue to digital.

This was followed by a second wave of technological innovations in financial services, starting with the advent of the automated teller machine
(ATM) in 1967 (“fintech 2.0”). Fast forward and we are now witnessing a third wave of increasing technological pervasiveness in finance, coupled with the emergence of new actors and channels for the provision of finance (“fintech 3.0”).

So when put in a historical context, fintech is not necessarily a new phenomenon or an abrupt Kuhnian transformation.5 What’s more, the recent burst of activity in the fintech space has inevitably raised questions about whether we have reached “peak fintech”, only for it to be followed by a steep trough of disillusionment as part of a hype cycle (Graph 5).6 Some have asked whether we are spectators at an “innovation theatre” that “promotes the impression of innovation and the future value that it brings” with concrete tangible improvements.7 And, more generally, regardless of the advancements made in technology, the role of human judgment is an essential element in banking and supervision.

Hmmm….

There are 5 scenarios for banks in future:

• Better Bank
• New Bank
• Distributed Bank
• Relegated Bank
• Disintermediated Bank

Read the speech for more details…

Designing Central Bank Digital Currencies

IMF econs Itai Agur, Anil Ari and Giovanni Dell’Ariccia in this paper explore designing CBDCs:

We study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of payment instruments dependent on the number of their users. CBDC can be designed with attributes similar to cash or deposits, and can be interest-bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank’s tradeoff.

 

Economic warfare: Insights from Mançur Olson

Mark Harrison of University of Warwick in this piece:

Economic warfare was widely used in WWII. When one country blockaded another’s supply of essential goods or bombed the industries producing them, why did the adversary’s economy fail to collapse? This column, part of the Vox debate on the economics of WWII, reviews Mançur Olson’s insights, which arose from the elementary economic concept of substitution. He concluded that there are no essential goods; there are only essential uses, which can generally be supplied in many ways.

Hmm…

Cashless Bank Branches in Canada

Interesting short paper by Walter Engert and Ben Fung of Bank of Canada.

Cashless or tellerless bank branches have proliferated in several countries in recent years. In a cashless bank branch, teller or counter services such as cash withdrawals, deposits and cheque-cashing are not available. These services are instead provided via automatic teller machines. This note discusses the development of tellerless bank branches in Canada and analyzes the potential implications for cash demand.

Some Canadian banks are moving towards branchless banking:

How important is it for a nation to have a payment system?

Nice speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank.

Central bank independence works differently for monetary policy and banking supervision

Nice speech by Yves Mersch of ECB. He says we need to think differently about independence when it comes to banking supervision and regulation:

As mentioned earlier, we need to differentiate between how the principles of independence and accountability apply in the central banking context on the one hand, and in respect of the ECB’s supervisory tasks on the other^[13].

The wording of Article 130 of the Treaty makes it clear that the principle of independence concerns the performance of ESCB tasks conferred upon the ECB by the Treaty itself, that is, central banking–related activities. I therefore share the view that this Article cannot be applied equally to the exercise of the ECB’s supervisory functions, which were assigned to the ECB through secondary EU legislation rather than by the Treaty,^[14] and were intended for purposes other than the pursuit of the price stability objective.

Whereas the ECB has fully autonomous regulatory and decision-making powers when conducting monetary policy,^[15] its discretion in carrying out its supervisory tasks is confined by the decisions taken by European and national legislators or regulators. Moreover, the ECB has a different and higher degree of accountability for its supervisory tasks than for its monetary policy task. This is because taxpayers may be affected by the way in which microprudential supervision is conducted, notwithstanding the intention under the new EU banking resolution regime for the costs of bank failures to be borne by the bank shareholders and creditors.

I in no way question the necessity for banking or financial supervisors to be operationally independent from undue political, commercial banking or other third-party influences. My point is that the degrees of independence that the ECB enjoys as a monetary policy authority on the one hand, and a banking supervisor on the other differ: both the source of independence and the ECB’s role are different in the two functions. And for these reasons, independence in the monetary policy function is stronger and more firmly embedded in the EU institutional framework than it is in the case of the supervisory function.

Hmm..

Most of the time, people are mixing these two aspects of central bank independence.

He also mentions that there are four kinds of independence (when it comes to mon policy):

Central Banking in challenging times

Nice speech/essay by Claudio Borio.  He reviews the experiences in macroeconomics and central banking before and after the 2008 crisis.

Since the Great Financial Crisis, central banks have been facing a triple challenge: economic, intellectual and institutional. The institutional challenge is that central bank independence – a valuable institution – has come in for greater criticism. This essay takes a historical perspective and draws parallels with the previous waxing and waning of central bank independence. It suggests that this institution is closely tied to globalisation, as both spring from the same fountainhead: an intellectual and political environment that supports an open system in which countries adhere to the same principles and governments remain at arm’s length from the functioning of a market economy. This suggests that the fortunes of independence are also tied to those of globalisation. The essay then proceeds to explore ways that can help safeguard independence. A key one is to narrow the growing expectations gap between what central banks are expected to deliver and what they can actually deliver. In that context, it also considers and dismisses the usefulness of recently proposed schemes that involve controlled deficit monetisation.

 

Trends in central banks’ foreign currency reserves and the case of the ECB

ECB economists in this research discuss forex reserves:

This article begins with a review of the global trends in central banks’ foreign currency reserve holdings in terms of their size, adequacy and composition, and follows on to examine the ECB’s foreign currency reserves. Just as the reasons for holding reserves have changed over time and across countries, so too have the size and composition of those reserves. Views on appropriate adequacy metrics have also changed. Global foreign currency reserves grew markedly after the Asian financial crisis of the late 1990s, with emerging markets accumulating large reserves to self-insure against potential shocks. In some cases, the growth in reserves was a by-product of export-led growth strategies. While global foreign currency reserves have traditionally been invested primarily in US dollar-denominated financial assets, in recent years holdings have become more diversified in terms of both currency and asset classes.

The second section of the article describes how the ECB’s foreign currency reserves are invested in the light of its main purpose, which is to ensure that the Eurosystem has a sufficient amount of liquid resources whenever they are needed for its foreign exchange policy operations involving non-EU currencies. The investment framework includes three layers of governance, representing: i) the strategic investment policy; ii) medium-term tactical positioning; and iii) day-to-day portfolio management. The way in which the framework involves the national central banks (NCBs) of the Eurosystem in the active management of the ECB’s foreign currency reserves is both unique and intricate. The article describes this active management approach, the internal competition between NCB portfolio managers and the diversification of portfolio management styles that the framework fosters.

 

Changes in India’s Macroeconomic Perceptions: Evidence from the Survey of Professional Forecasters

Sanjib Bordoloi, Rajesh Kavediya, Sayoni Roy and Akhil Goyal of RBI in this Nov-19 Monthly Bulletin article:

This article presents an analysis of annual and quarterly forecasts of major macroeconomic variables in the Reserve Bank’s bimonthly survey of professional forecasters (SPF). Forecast of output growth and CPI inflation for 2018-19 and 2019-20 was revised down. The forecast path of exclusion based CPI inflation was gradually revised up for 2018-19 but lowered for 2019-20. Forecast performance improves with reduction in forecast horizon, indicating forecasters’ tendency to update their forecasts with incoming information and provide more accurate estimates as they approach closer to the final estimate of the underlying indicator. The forecasts are found efficient for headline CPI inflation and exclusion based CPI inflation. Disagreement measures for GVA growth
have remained close to its medium term average for all the forecast horizons in the recent period. The general behaviour of the inflation uncertainty largely shows that uncertainty moderated since November 2018.

 

Chaebols and firm dynamics in the Republic of Korea

Philippe Aghion, Sergei Guriev and Kangchul Jo in this piece:

Moving from low- to high-income status implies that countries escape the middle-income trap. This implies institutional reform to create innovation-based growth. The column uses firm-level data to show how the Korean government’s chaebol reforms in the late 1990s transformed the economy from an investment-based to an innovation-based model. There are lessons here for China.

The impact of negative interest rates on banks and firms

I had blogged about impact of negative interest rates on pension markets.

Carlo Altavilla, Lorenzo Burlon, Mariassunta Giannetti and Sarah Holton write about impact of negative interest rates (NIRP) on banks and firms:

Economists and policymakers continue to question the effectiveness of monetary policy when an economy faces near-zero or sub-zero interest rates. Sceptics argue that central banks cannot stimulate lending, and may indeed decrease the loan supply, by setting negative interest rates. This column shows that negative rates do not impede the transmission of monetary policy from banks to deposit holders because firms do not withdraw cash in response to negative rates the way households might. In fact, sub-zero rates may even stimulate the economy by encouraging firms to invest.

In summary, not only do sound banks pass the negative rates on to corporate depositors and maintain loan supply, but the transmission mechanism is enhanced by the fact that firms with large cash-holdings more exposed to negative rates decrease their liquid asset holdings and invest more in fixed assets. 

The beneficial effects of NIRP on investment that we uncover can explain why negative rates do not appear to adversely affect bank profitability in existing studies (Altavilla et al. 2018, Lopez et al. 2018). Thus, in contrast to conventional wisdom, we find that, when banks are sound, the NIRP can provide stimulus to the real economy by influencing the behaviour of both banks and firms. 

 

How low/negative interest rates are impacting pension industry? The Swiss case

I had blogged about Denmark central banker being concerned about impact of low interest rates on pensions.

Thomas Jordan, head of Swiss National Bank, in this speech speaks on issues facing pension funds industry. The situation even more acute in Swissland as it has negative interest rates: