Special report | Low interest rates
When interest rates turn negative
Banks do less banking with interest rates at zero
BANKING COULD be called the business of time travel. When savers deposit money in a bank, they postpone consumption. When borrowers take out loans they pull future consumption forward. Banks facilitate this by the magic of interest. When they make loans and charge interest, or pay interest on deposits, they are really putting a price on time itself. But when interest rates are zero, or even negative, this trick becomes much harder to pull off.
This article appeared in the Special report section of the print edition under the headline “Time is cheap”
From the May 8th 2021 edition
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