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Do Negative Interest Rates Make Banks Less Safe?

Listed author(s):
  • Federico Nucera

    ()

    (LUISS Guido Carli University, Rome)

  • Andre Lucas

    ()

    (Vrije Universiteit Amsterdam and Tinbergen Institute)

  • Julia Schaumburg

    ()

    (Vrije Universiteit Amsterdam and Tinbergen Institute)

  • Bernd Schwaab

    ()

    (European Central Bank, Financial Research)

We study the impact of increasingly negative central bank policy rates on banks' propensity to become undercapitalized in a financial crisis (`SRisk'). We find that the risk impact of negative rates depends on banks' business models: Large banks with diversified income streams are perceived as less risky, while smaller and more traditional banks are perceived as more risky. Policy rate cuts below zero trigger different SRisk responses than an equally-sized cut to zero.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 17-041/IV.

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Date of creation: 25 Apr 2017
Handle: RePEc:tin:wpaper:20170041
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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-472, May.
  2. Andre Lucas & Julia Schaumburg & Bernd Schwaab, 2016. "Bank Business Models at Zero Interest Rates," Tinbergen Institute Discussion Papers 16-066/IV, Tinbergen Institute.
  3. Acharya, Viral & Plantin, Guillaume, 2017. "Monetary easing and financial instability," LSE Research Online Documents on Economics 70715, London School of Economics and Political Science, LSE Library.
  4. repec:oup:rfinst:v:30:y:2017:i:1:p:48-79. is not listed on IDEAS
  5. Christian Brownlees & Robert F. Engle, 2017. "SRISK: A Conditional Capital Shortfall Measure of Systemic Risk," Review of Financial Studies, Society for Financial Studies, vol. 30(1), pages 48-79.
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