Monetary Policy and Bank Equity Values in a Time of Low and Negative Interest Rates

Miguel Ampudia and Skander Van den Heuvel ()

Journal of Monetary Economics, 2022, vol. 130, issue C, 49-67

Abstract: Does banks’ exposure to interest rate risk change when interest rates are very low or negative? Using a high-frequency event study methodology and intraday data, we find that the effect of surprise interest rate cuts by the ECB on European bank equity values – an effect that is normally positive – has become negative since interest rates in the euro area reached zero and below. This ‘reversal’ was far more pronounced for banks with a more deposit-intensive funding mix. We argue that these results can be explained by the zero lower bound on interest rates on retail deposits.

Keywords: negative interest rates; monetary policy; bank profitability; reversal rate; ECB (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 G21 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (20)

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Working Paper: Monetary Policy and Bank Equity Values in a Time of Low and Negative Interest Rates (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:130:y:2022:i:c:p:49-67

DOI: 10.1016/j.jmoneco.2022.05.006

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