Interest rate pass-through and bank risk-taking under negative-rate policies with tiered remuneration of central bank reserves

Christoph Basten and Mike Mariathasan

Journal of Financial Stability, 2023, vol. 68, issue C

Abstract: We identify the effects of negative rates on bank behavior using difference-in-differences identification. First, we find that going negative can interrupt not only the pass-through from policy to deposit but also to mortgage rates. To preserve their deposit franchise, banks finance negative deposit with increased mortgage spreads, the more the bigger their market power. Second, negative rates on reserves induce banks to cut some reserves without replacement and replace others with riskier assets. Together with increased mortgage spreads, balance sheet restructuring preserves profits but risk-taking increases. Third, pass-through interruption and risk-taking can be reduced through tiered remuneration.

Keywords: Negative interest rate policy; Monetary policy transmission; Interest pass-through; Credit risk; Interest rate risk; Tiered remuneration (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 G20 G21 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Interest rate pass-through and bank risk-taking under negative-rate policies with tiered remuneration of Central Bank Reserves (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:68:y:2023:i:c:s1572308923000608

DOI: 10.1016/j.jfs.2023.101160

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