Pass-through from Danmarks Nationalbank’s interest rates to the banks’ interest rates

The article analyses the pass-through from Danmarks Nationalbank’s interest rates
to bank deposit and lending rates for households and non-financial corporations. As
regards bank lending rates, the pass-through from Danmarks Nationalbank was reduced
significantly in connection with the financial crisis in the autumn of 2008, when bank
lending rates were slow to follow the sizeable reductions of Danmarks Nationalbank’s
interest rates in the following months. The pass-through was relatively quickly restored,
however. The banks determine their lending rates on the basis of the costs of funding
the loans and the risk on the loans. When bank funding costs are taken into account in
the explanation of the pass-through from the rate of interest on certificates of deposit,
there is no notable difference in the pass-through to lending rates before and after the
financial crisis. The pass-through from Danmarks Nationalbank’s interest rates to bank
corporate and household deposit rates has been reduced due to the low level of interest
rates. The banks have been hesitant to pass on Danmarks Nationalbank’s negative rate
of interest to small firms and especially to households, which have been exempt from
negative deposit rates.