Financial Stability Policy Lowers Interest Rates

(University of St.Gallen, September 22, 2020)

Interest rates have remained at all-time lows for some time, with a significant portion of the global bond market trading below nominal zero. In this context, a new study by the Swiss Institute for Banking and Finance at the University of St. Gallen recently demonstrated that this is not only due to monetary policy, but also because of the policy of financial stability. Furthermore, the study highlighted that these regulations have also created unintended consequences within the new regulatory framework, such as disincentivising repo intermediation, inducing collateral scarcity and window-dressing at the end of reporting periods. Accordingly, the study illustrated that these policies bring with them important consequences for our society-at-large, policy makers, financial authorities and even central banks.