Mardi | 2020-03-05
Salle B.103 12h15 16h45

Alessio BONGIOVANNI

We offer early evidence on the impact of negative interest rate policy (NIRP) on bank risk-taking. Our robust empirical evidence finds banks in NIRP-adopter countries reduce holdings of risky assets by around 10 percentage points compared to banks in non-adopter countries. This supports the “deleverage” hypothesis, which posits that banks opt to cleanse weakened balance sheets by investing in safer liquid assets, such as, sovereign bonds due to favourable, zero risk weight, regulatory treatment. We prove the NIRP-effect is heterogeneous; post-NIRP risk-taking increases at strongly capitalised banks and at banks operating in less competitive markets that exploit market power to insulate net interest margins and profitability. We base our evidence on a sample of 2,731 banks from 33 OECD countries between 2012 and 2016, and from models that employ a difference-in-differences framework.