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

Basten, Christoph; Mariathasan, Mike (2023). Interest rate pass-through and bank risk-taking under negative-rate policies with tiered remuneration of central bank reserves. Journal of Financial Stability, 68:101160.

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.

Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Finance
Social Sciences & Humanities > General Economics, Econometrics and Finance
Uncontrolled Keywords:Negative interest rate policy, Monetary policy transmission, Interest pass-through, Credit risk, Interest rate risk, Tiered remuneration
Scope:Discipline-based scholarship (basic research)
Language:English
Date:1 October 2023
Deposited On:04 Jan 2024 14:21
Last Modified:30 Oct 2024 02:39
Publisher:Elsevier
ISSN:1572-3089
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jfs.2023.101160
Other Identification Number:merlin-id:24202

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