Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/261172 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2638
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We consider a standard banking model with agency frictions to simultaneously study the weakening and reversal of monetary transmission and banks' risk-taking in a low-interest environment. Both, weaker monetary transmission and higher risk-taking arise because lower policy rates impair banks' net worth. The pass-through to deposit rates, the level of excess reserves and the extent of the agency problem between banks and depositors are crucial determinants of monetary transmission. If the deposit pass-through is sufficiently impaired, a reversal rate exists. For policy rates below the reversal rate further interest rate reductions lead to a disproportionate increase in risk-taking and a contraction in loan supply.
Subjects: 
Monetary policy
Bank lending
Risk-taking channel
Reversal rate
JEL: 
G21
E44
E52
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4971-2
Document Type: 
Working Paper

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