How Problematic Are Negative Rates to Central Banks?

The video discusses the concept of negative interest rates, explaining that they function more like a fiscal policy than a traditional monetary policy. Negative rates are described as a tax on savings, banks, and large depositors, which has led to complex policy responses from the ECB, such as the TLTRO program. The impact of these rates is seen in Switzerland, where banks have raised mortgage rates to compensate for the tax. The video also explores the challenges faced by European banks in making profits in a financial system with prolonged negative rates.

What is the primary nature of negative interest rates as discussed in the video?

• Environmental policy

• Trade policy

• Fiscal policy

• Monetary policy

How did the ECB initially react to the realization that negative rates are a tax on banks?

• By increasing interest rates

• By implementing the TLTRO program

• By closing down banks

• By reducing taxes on banks

What was the response of Swiss banks to negative interest rates on deposits?

• Offering more loans

• Lowering mortgage rates

• Increasing savings account interest

• Raising mortgage rates

What challenge do major European banks face with prolonged negative rates?

• Higher taxes

• Regulatory issues

• Difficulty in making profits

• Increased competition

What is the ECB's strategy to counteract the effects of negative interest rates?

• Increasing taxes

• Providing subsidies for bank lending

• Reducing government spending

• Encouraging foreign investments