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Do Negative Interest Rates Make Banks Less Safe?

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Federico Nucera & Andre Lucas & Julia Schaumburg & Bernd Schwaab, 2017. "Do Negative Interest Rates Make Banks Less Safe?," Tinbergen Institute Discussion Papers 17-041/IV, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20170041
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    References listed on IDEAS

    as
    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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    negative interest rates; bank business model; systemic risk; unconventional monetary policy measures;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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