tailieunhanh - Low interest rates: do the risks outweigh the rewards?

Brewer, Minton, and Moser (2000), we evaluate an equation relating the determinants of C&I lending and the impact of derivatives on C&I lending activity. The major finding in this study is that the interest-rate derivatives allow commercial banks to lessen their systematic exposure to changes in interest rates, which enables banks to increase their lending activities without increasing the total risk level faced by the banks. This consequently increases the banks’ abilities to provide more intermediation services. Furthermore, a positive and significant association between lending and derivative activity indicates that the net effect of derivative use on C&I lending is. | III. Low interest rates do the risks outweigh the rewards Central banks around the world first reacted to the economic downturn caused by the financial turmoil by aggressively cutting interest rates. As a result policy rates in the main advanced economies range currently between zero and 1 leaving little to no room for additional cuts to accommodate any further negative shocks Graph . In real terms rates are around zero in the euro area and negative in the United Kingdom and the United States. In Japan by contrast mild deflation has pushed real rates just above zero again. As the crisis worsened central banks adopted unconventional policies to help prevent what many observers feared might become a second Great Among other things they provided extensive liquidity in domestic currency made use of swap arrangements to offer foreign currency to domestic institutions and intervened in fixed income markets. The unconventional measures significantly increased the size and altered the composition of central bank balance sheets Graph . Governments complemented the central bank response by supporting individual financial institutions and providing substantial fiscal stimulus see Chapter V . In the crisis central banks cut policy rates . . and adopted unconventional monetary policies Nominal and real policy rates In per cent Nominal1 02 03 04 05 06 07 08 09 10 Real adjusted for core inflation 3 1 For the United States target federal funds rate as of mid-December 2008 midpoint of the target rate corridor for the euro area minimum bid rate up to October 2008 and fixed rate of the main refinancing tenders thereafter for Japan target for the uncollateralised overnight call rate for the United Kingdom Bank rate. 2 Ex post real rates nominal policy rate minus annual headline inflation CPI for the United States and Japan HICP for the euro area and the United Kingdom for the United Kingdom RPIX prior to 2003 . 3 Ex post real rates nominal policy rate .