Nucera, F., Lucas, A., Schaumburg, J. and Schwaab, B. (2017). Do negative interest rates make banks less safe? Economics Letters, 159:112--115.
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Affiliated authors
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Publication year2017
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JournalEconomics Letters
We study the impact of increasingly negative central bank policy rates on banks{\textquoteright} propensity to become undercapitalized in a financial crisis ({\textquoteleft}SRisk{\textquoteright}). We find that the risk impact of negative rates depends on banks{\textquoteright} 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 earlier cut to zero.