Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/166748
Authors: 
Demiralp, Selva
Eisenschmidt, J.
Vlassopoulos, T.
Year of Publication: 
2017
Series/Report no.: 
Working Paper 1708
Abstract: 
In June 2014 the ECB became the first major central bank to lower one of its key policy rates to negative territory. The theoretical and empirical literature is silent on whether banks' reaction would be different when the policy rate is lowered to negative levels compared to a standard reaction to a rate cut. In this paper we examine this question empirically by using individual bank data for the euro area to identify possible adjustments by banks triggered by the introduction of negative interest rates through three channels: government bond holdings, bank lending, and wholesale funding. We find evidence of a significant adjustment of banks' balance sheets during the negative interest rate period. Banks tend to extend more loans, hold more non-domestic government bonds and rely less on wholesale funding. The nature and scope of the adjustment depends on banks' business models.
Subjects: 
negative rates
bank balance sheets
monetary transmission mechanism
JEL: 
E43
E52
G11
G21
Document Type: 
Working Paper

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