NEGATIVE INTEREST RATES: IMPACTS ON BANKING SECTOR

Basic interest rates set by central banks have been extremely low for historically long period of time. Temporary measures have become a new normal of monetary policy. Zero has proved not to be a lower bound for central bank policy rates. While the expected positive outcomes for real economy have not proved to be strongly convincing, potentially dangerous side effects of negative interest rates have been rather downplayed by policy makers. In particular, the negative interest rates have started to undermine the roots of traditional banking business models. Moreover, asset price inflation. incentives for excessive financial risk-taking and deficits in pension schemes seem to threaten financial stability in the future.