Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229036
Authors: 
Döttling, Robin
Year of Publication: 
2020
Series/Report no.: 
ECB Working Paper No. 2422
Abstract: 
How do near-zero interest rates affect optimal bank capital regulation and risk-taking? I study this question in a dynamic model, in which forward-looking banks compete imperfectly for deposit funding, but households do not accept negative deposit rates. When deposit rates are constrained by the zero lower bound (ZLB), tight capital requirements disproportionately hurt franchise values and become less effective in curbing excessive risk-taking. As a result, optimal dynamic capital requirements vary with the level of interest rates if the ZLB binds occasionally. Higher in ation and unconventional monetary policy can alleviate the problem, though their overall welfare effects are ambiguous.
Subjects: 
Zero lower bound
search for yield
capital regulation
franchise value
unconventional monetary policy
JEL: 
G21
G28
E44
E58
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4065-8
Document Type: 
Working Paper

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