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The Impact of Negative Interest Rate Policy on the Behavior of Commercial Banks

Student: Aida Chushkina

Supervisor: Sergey E. Pekarski

Faculty: Faculty of Economic Sciences

Educational Programme: Economics (Bachelor)

Year of Graduation: 2020

Japanese interest rates policy has entered a negative segment, and the expectations of macroeconomists do not seem to change. So, in this environment, it is necessary to understand whether this politics is justified so that to know how it is harmful or not for banks. Different countries demonstrate an individual reaction to NIRP. In this paper, using a panel dataset of 113 banks operating in Japan between 2011 to 2019, it is aimed to assess the impact of negative interest rates on banks' profitability and risk-taking. Using dynamic panel models and System Generalised Method Of Moment, I analysed the effect of negative interest rate policy on bank's NIM, ROE, ROA and proxies of risk-taking and dependence of the impact on the banks' specific characteristics. It was found that the bank's profit indexes did not suffer from a negative interest rate policy introduction. Furthermore, negative interest rates led to an increase in banks' risk-taking. Finally, it was found that the impact of negative rates on profitability and risk-taking differ among banks, depending on their specific balance sheet characteristics.

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