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How Firms Deal with Negative Interest Rates

Summary:
Almost one in five companies in Germany has seen their banks trying to charge negative interest on deposits. Medium-sized and large companies were significantly more affected than small companies. There are also significant regional differences: companies in Saxony, Bavaria and Thuringia are most affected. This was determined in a survey by the ifo Institute of 4000 companies from manufacturing, construction, distribution and the services. The majority of companies, however, seek to circumvent negative interest rates, most frequently by negotiations with their bank or by changing to a bank that does not yet charge negative interest on deposits. Other strategies employed were shifting between financial assets or business units as well as an increase in investment

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Almost one in five companies in Germany has seen their banks trying to charge negative interest on deposits. Medium-sized and large companies were significantly more affected than small companies. There are also significant regional differences: companies in Saxony, Bavaria and Thuringia are most affected. This was determined in a survey by the ifo Institute of 4000 companies from manufacturing, construction, distribution and the services. The majority of companies, however, seek to circumvent negative interest rates, most frequently by negotiations with their bank or by changing to a bank that does not yet charge negative interest on deposits. Other strategies employed were shifting between financial assets or business units as well as an increase in investment activity. “Especially the latter reaction is interesting from a macroeconomic perspective since it will have not only a monetary but also real-economy impact”, says Christa Hainz, one of the authors of the study.

Negative interest rates threatened 18.9 percent of the companies, according to the survey. 48.9 percent of the firms then began to negotiate with their banks. 36 percent of the companies switched to a bank that does not charge negative interest. 30 percent made shifts to other financial assets or repaid loans and 29 percent redeployed the money within their companies. Those that increased or brought forward investments totalled 11 percent. Negative interest rates were accepted by only 8 percent; 4 percent increased their cash holdings.

Companies confronted most with negative interest were in Saxony (29.8 percent), Bavaria (23.0), Thuringia (21.3), Hamburg (20.8), North Rhine-Westphalia (19.6) and Mecklenburg-Vorpommern (19.2).

The least affected were small companies with fewer than 50 employees (10 percent). For medium-sized enterprises, this figure was 26 percent and for large companies with at least 250 employees it was 29 percent.

Negative interest rates strongly affected the earnings situation of 8 percent of the firms, less strongly for 39 per cent and insignificantly or not at all for 53 per cent.

Publication (in German)

Christa Hainz, Artem Marjenko and Susanne Wildgruber, "Die Auswirkungen der Niedrigzinspolitik der EZB auf Unternehmen", ifo Schnelldienst 15/2017, forthcoming

    Clemens Fuest
    Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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