How Negative Interest Rates Affect The Risk Taking Of Individual Investors

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How Negative Interest Rates Affect The Risk Taking Of Individual Investors

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Author : Maren Baars
language : en
Publisher:
Release Date : 2019

How Negative Interest Rates Affect The Risk Taking Of Individual Investors written by Maren Baars and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.

Since the financial crisis of 2008, risk-free interest rates are at historical lows and even turned negative in some developed countries. We study experimentally how such changes in the interest rate regime affect the risk-taking of individual investors. Keeping the risk premium constant, we find that a reduction in the interest rate does not affect risk-taking in general. Risk-taking only increases significantly if the interest rate falls below zero. These findings are in line with value functions that are highly return sensitive around zero.

Bank Profitability And Risk Taking

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Author : Natalya Martynova
language : en
Publisher: International Monetary Fund
Release Date : 2015-11-25

Bank Profitability And Risk Taking written by Natalya Martynova and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-11-25 with Business & Economics categories.

Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.

Negative Interest Rates

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Author : Luís Brandão Marques
language : en
Publisher: International Monetary Fund
Release Date : 2021-03-03

Negative Interest Rates written by Luís Brandão Marques and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-03-03 with Business & Economics categories.

This paper focuses on negative interest rate policies and covers a broad range of its effects, with a detailed discussion of findings in the academic literature and of broader country experiences.

International Convergence Of Capital Measurement And Capital Standards

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Author :
language : en
Publisher: Lulu.com
Release Date : 2004

International Convergence Of Capital Measurement And Capital Standards written by and has been published by Lulu.com this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004 with Bank capital categories.

Negative Interest Rate Policy Nirp

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Author : Andreas Jobst
language : en
Publisher: International Monetary Fund
Release Date : 2016-08-10

Negative Interest Rate Policy Nirp written by Andreas Jobst and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-08-10 with Business & Economics categories.

More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate.

Negative Monetary Policy Rates And Portfolio Rebalancing Evidence From Credit Register Data

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Author : Margherita Bottero
language : en
Publisher: International Monetary Fund
Release Date : 2019-02-28

Negative Monetary Policy Rates And Portfolio Rebalancing Evidence From Credit Register Data written by Margherita Bottero and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-02-28 with Business & Economics categories.

We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply-- -and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.

Enabling Deep Negative Rates To Fight Recessions A Guide

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Author : Ruchir Agarwal
language : en
Publisher: International Monetary Fund
Release Date : 2019-04-29

Enabling Deep Negative Rates To Fight Recessions A Guide written by Ruchir Agarwal and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-04-29 with Business & Economics categories.

The experience of the Great Recession and its aftermath revealed that a lower bound on interest rates can be a serious obstacle for fighting recessions. However, the zero lower bound is not a law of nature; it is a policy choice. The central message of this paper is that with readily available tools a central bank can enable deep negative rates whenever needed—thus maintaining the power of monetary policy in the future to end recessions within a short time. This paper demonstrates that a subset of these tools can have a big effect in enabling deep negative rates with administratively small actions on the part of the central bank. To that end, we (i) survey approaches to enable deep negative rates discussed in the literature and present new approaches; (ii) establish how a subset of these approaches allows enabling negative rates while remaining at a minimum distance from the current paper currency policy and minimizing the political costs; (iii) discuss why standard transmission mechanisms from interest rates to aggregate demand are likely to remain unchanged in deep negative rate territory; and (iv) present communication tools that central banks can use both now and in the event to facilitate broader political acceptance of negative interest rate policy at the onset of the next serious recession.

Bank Leverage And Monetary Policy S Risk Taking Channel

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Author : Mr.Giovanni Dell'Ariccia
language : en
Publisher: International Monetary Fund
Release Date : 2013-06-06

Bank Leverage And Monetary Policy S Risk Taking Channel written by Mr.Giovanni Dell'Ariccia and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-06-06 with Business & Economics categories.

We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.

Pushed Past The Limit How Japanese Banks Reacted To Negative Interest Rates

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Author : Mr.Gee Hee Hong
language : en
Publisher: International Monetary Fund
Release Date : 2018-06-13

Pushed Past The Limit How Japanese Banks Reacted To Negative Interest Rates written by Mr.Gee Hee Hong and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-06-13 with Business & Economics categories.

In this paper, we investigate how negative interest rate policy (NIRP) introduced in January 2016 by the Bank of Japan (BoJ) affected Japanese banks' lending and risk taking behavior. The BoJ's announcement was an unexpected surprise to the market and was followed by a sharp drop in equity prices of Japanese financial firms. We exploit the cross-sectional variation in the change of share prices on the day of the announcement to measure banks' differential exposure to NIRP. We show that more exposed banks increased their credit and took on more risk compared to banks that were less exposed to negative rates.

Managing Interest Rate Risk

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Author : John J. Stephens
language : en
Publisher: John Wiley & Sons
Release Date : 2002-03-12

Managing Interest Rate Risk written by John J. Stephens and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002-03-12 with Business & Economics categories.

This book tackles the subject of interest rate risk, a matter of key importance to all businesses, whether borrowing, investing, saving or trading.