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Webinar – Why is the central bank interest rate so low and why is it so high for the SME’s?

Why is the central bank interest rate so low and why is interest rate so high for the SME's? The answer might be in the banking regulations

Why is the interest rate for the SME’s so high, while the central bank interest rate is so low?

Our Webinar Series

We started with the regular webinar series with the focus on the Blockchain, Crypto lending, and coronavirus economic crisis. We host the webinar every Sunday, 15:00 CET (Central European Time):

Key questions in the webinar

Coronavirus has caused a worldwide economic shock and the world economy has slipped into the recession. One of the key indicators of how this crisis will develop is bank credit – how many loans will the bank’s issue into the economy. Declining total bank credit will lead to deflation, stabilizing total bank credit helps to recover the economy.

However, bank credit is only the first part of the story. The second part of the story is – why is the interest rate for the bank credit so high for the SME’s (Small Medium Enterprises) although the central bank’s interest rate is so low? The usual answer is that this is related to the risk of the loan. But is it so? What will determine to whom the banks lend money? What is the motivation of the banks?

In this blog article we look at the following questions:

  • How does a monetary system work?
  • Why are interest rates so low now?
  • How do interest rates influence the economy?
  • Why do banks s prefer to lend to the big corporations?
  • What could be an easy solution? 

Here is the recording of the webinar:

Takeaways

  • Why are the central bank’s interest rates so low? Low-interest rates are central banking policies to respond to recessions. However, the central bank’s overdid this by keeping the interest rates too long down and by doing too much Quantitative Easing. If central banks would increase interest rates, then this would result in a recession
  • Why are the interest rates so high for the SME’s? This is because the SME’s do not have credit ratings and banks would use high “Risk-Weighted Assets Budget” penalties when lending to the SME’s without the credit ratings. Therefore the banks charge higher interest to the SME’s for compensating the loss in the “RWA budget

For more information about the webinar please check out the related articles from the SmartCredit.io blog:

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