Lowering liability costs by breaking through the lower bounds on the funding side arguably supports profitability but leaves doubt whether this results in lower, synchronised Lending rates, higher Loan growth, or improved Lending profitability. This paper reviews existing research discussing bank lending in a negative rate environment, assesses whether lower bounds across Lending, Deposit, and Leading Reference Rates have been synchronized and how this has impacted Lending profitability.

The method of analysis comprises the application of linear regressions on the critical variables, including beforementioned rates, Loans outstanding, and Net Interest Income. Such variables are extracted from a data set originated via Bloomberg Professional. The interrelationships and significance between these metrics allow to form conclusions. The sample entails 63 financial institutions domiciled in countries driven by the Euro, Swiss Franc, Danish and Swedish Krona.

The results and their discussion suggest some key takeaways, that are: (i) specific linear effects are discontinued once the ZLB on LRRs is breached; (ii) lenders appear limited in their ability to steer profitability proactively, while supporting the transmission mechanism at the expense of own returns; and (iii) the amount of Loans outstanding, and Lending profitability are likely influenced by factors beyond the level of interest rates only. The conclusion of this paper supports a holistic understanding of rate-setting dynamics while outlining the potential for complementing research. A set of limitations in terms of approach and data is to be considered then building upon the conclusions presented.