Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278243 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2755
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
How do real interest rates affect financial fragility? We study this issue in a model in which bank borrowing is subject to rollover risk. A bank's optimal borrowing trades off the benefit from investing additional funds into profitable assets with the cost of greater risk of a run by bank creditors. Changes in the interest rate affect the price and amount of borrowing, both of which influence bank fragility in opposite directions. Thus, the marginal impact of changes to the interest rate on bank fragility depends on the level of the interest rate. Finally, we derive testable implications that may guide future empirical work.
Subjects: 
bank borrowing
rollover risk
fragility
real interest rates
global games
funding liquidity risk channel
JEL: 
G01
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5403-7
Document Type: 
Working Paper

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