NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) releases its Banking in Fear of NIRP? report, which reviews the implications for U.S. banks in the unlikely event, in KBRA’s view, that the Fed Reserve adopts a negative interest rate policy (NIRP) similar to the European Central Bank and the Bank of Japan.
While large U.S. banks hold more direct earnings risk exposure because of regulatory requirements such as the Liquidity Coverage Ratio, smaller regional and community banks hold a higher proportion of retail deposit funding which, in KBRA’s view, would be floored above the 0% lower bound.
KBRA’s assumption follows a scenario whereby negative rates are implemented in the absence of recession, the same as in Europe and Japan. In the case of actual recessionary conditions, this could lead to higher credit losses far exceeding the potential earnings impact for banks of all sizes. The bottom-line view is that negative rates would have a modest impact on profits, but lead to faster industry consolidation in the long term.
To view the report, click here.
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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
Ethan M. Heisler, CFA, Senior Director
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