Negative Monetary Policy Rates and Systemic Banks' Risk-Taking: Evidence from the Euro Area Securities Register

Authors: Johannes Bubeck, Angela Maddaloni and José-Luis Peydró

Journal of Money, Credit and Banking, Vol. 52 (S1), 197-231, November, 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 nonfinancial) securities and dollar‐denominated securities. Affected banks also take higher risk in loans.

This paper originally appeared as Barcelona School of Economics Working Paper 1128