In its discussion paper – QE and ultra-low interest rates: distributional effects and risks – McKinsey estimates that US and eurozone governments collectively benefited by $1.6trn during the period, owing to the reduced costs of servicing debt and increased profits remitted by their central banks.
However, loose monetary policies had an uneven impact on banks either side of the Atlantic. While the profitability of eurozone institutions was eroded by $230bn, US banks benefited, as interest payments on liabilities fell more than the interest received on their loans and other assets.
| US | Euro | |
|---|---|---|
| Central government | 900 | 360 |
| Non-financials | 310 | 280 |
| Banks | 150 | -230 |
| Insurance & Pensions | -270 | -130 |
| Households | -360 | -160 |
| Rest of world | -480 | -150 |
Other winners were American and European non-financials, which enjoyed gains of $310bn and $280bn respectively. McKinsey notes that such companies have not increased investment as a result, “perhaps because the recession has lowered their expectations of future demand”.
And the losers are…
As well as eurozone banks, McKinsey reveals that the biggest losers in the West were insurance companies, pension funds and households. Indeed, the impact on insurers was so severe that many “would find their survival threatened” if low interest rates continued for several more years.
Other findings of the report:
- There is “little conclusive evidence” that ultra-low rates boosted equities;
- Such policies apparently prompted additional capital flows to emerging market bonds; and
- Older households with interest-bearing assets were hit harder than young households.
A copy of QE and ultra-low interest rates: distributional effects and risks can be downloaded from the McKinsey website, here.
