Negative Monetary Policy Rates and Systemic Banks' Risk-Taking: Evidence from the Euro Area Securities Register
46 Pages Posted: 4 Aug 2020
Date Written: 2020
We show that negative monetary policy rates induce systemic banks to reach-for-yield. For identification, we exploit the introduction of negative deposit rates by the European Central Bank in June 2014 and a novel securities register for the 26 largest euro area banking groups. Banks with more customer deposits are negatively affected by negative rates, as they do not pass negative rates to retail customers, in turn investing more in securities, especially in those yielding higher returns. Effects are stronger for less capitalized banks, private sector (financial and non-financial) securities and dollar-denominated securities. Affected banks also take higher risk in loans.
Keywords: Negative Rates, Non-Standard Monetary Policy, Reach-for-Yield, Securities, Banks
JEL Classification: E43, E52, E58, G01, G21
Suggested Citation: Suggested Citation