For hundreds of years, banks have operated in a positive interest rate environment – in which they receive interest payments on the amount of reserves they keep at central banks, and they charge borrowers a lending rate greater than the deposit rate they pay depositors. As a result, the larger the interest rate margin, the higher banks’ earnings.
In recent years, central banks in many developed countries have lowered official interest rates, all the way to negative territory, and recently banks in some Scandinavian countries have started tochargedepositors andpayborrowers. This is something of a first in the history of banks.
In this assignment, you are asked to contemplate the phenomenon of negative interest rates. More specifically, to discuss the possible effects of these negative rates on banks’ activities, risk taking behavior, and performance. Finally - what will be the broader macroeconomic implications of these phenomena?
Untitled 1 ECON335 The Economics of Financial Institutions S2, 2019 Compulsory Assignment (20%) Due 11pm Sunday, October 6, 2019 Question For hundreds of years, banks have operated in a positive interest rate environment – in which they receive interest payments on the amount of reserves they keep at central banks, and they charge borrowers a lending rate greater than the deposit rate they pay depositors. As a result, the larger the interest rate margin, the higher banks’ earnings. In recent years, central banks in many developed countries have lowered official interest rates, all the way to negative territory, and recently banks in some Scandinavian countries have started to charge depositors and pay borrowers. This is something of a first in the history of banks. In this assignment, you are asked to contemplate the phenomenon of negative interest rates. More specifically, to discuss the possible effects of these negative rates on banks’ activities, risk taking behavior, and performance. Finally - what will be the broader macroeconomic implications of these phenomena? Relevant readings: You may want to use these provided readings which can be found in ilearn, and/or you may want to conduct your own research to suit the purposes of your argument and analysis. Words Limitation: As a guide, the assignment should be between 1,400 – 1,600 words (excluding references). Format Requirements: Any font with a font size of 12. Referencing, both in text and in the reference list, of sources is required. Any reference style/format is accepted. Make sure your name and ID are on every page of the submitted assignment. 2 Submission: The assignment must be submitted online via the unit’s web page by 11pm on Sunday, 6 October 2019. Please do NOT include this document in your submitted assignment. Plagiarism: Each assignment must represent the student's own work. In particular, this means that the written answers submitted by the student should be composed by that student. Copying of another student's answer or from references or any other sources, or getting someone else (with or without payment) to do the assignment for you, or part thereof, is clearly regarded as plagiarism. Cases of plagiarism will be dealt with severely. For further information on plagiarism and how to avoid it, please refer to the university policy about academic honesty and integrity. Late submission: No extensions will be granted. There will be a deduction of 10% of the total available marks made from the total awarded mark for each 24- hour period or part thereof that the submission is late (for example, 25 hours late in submission incurs a 20% penalty). Late submissions will be accepted up to 96 hours after the due date and time. This penalty does not apply for penalty does not apply for cases in which an application for Special Consideration is made and approved. Note: applications for Special Consideration must be made within 5 (five) business days of the due date and time.