The Reversal Interest Rate A Critical Review

Rafael Repullo ^[1]
1. [1] Centro de Estudios Monetarios y Financieros
  
  Centro de Estudios Monetarios y Financieros
  
  Madrid, España
Localización: Documentos de Trabajo ( CEMFI ), Nº. 21 (CEMFI Working Paper No. 2021, October 2020), 2020
Idioma: inglés
Enlaces
- Texto completo (pdf)

Resumen
- This paper reviews the analysis in Brunnermeier and Koby (2018), showing that lower monetary policy rates can only lead to lower bank lending if there is a binding capital constraint and the bank is a net investor in debt securities, a condition typically satisfied by high deposit banks. It next notes that BK’s capital constraint features the future value of the bank’s capital, not the current value as in standard regulation. Then, it sets up an alternative model with a standard capital requirement in which profitability matters because bank capital is endogenously provided by shareholders, showing that in this model there is no reversal rate.