With a Carrot and a Stick: The Effects of the European Central Bank’s Negative Interest Rate Policy on the Banking System

Gunther Schnabl and Nils Sonnenberg show that the ECB is weakening the profitability of banks while strengthening them in a way that allows it to implement policy goals with the help of commercial banks. Moreover, with the help of the negative interest rate policy, banks from the southern euro area, along with large banks that have struggled, tend to be propped up, but at the expense of banks in the northern euro area.