Monetary policy effects when interest rates are negative

Negative interest rates matter for bank performance. When interest rates turn negative, banks suffer. This is because retail deposit rates are stuck at zero. Consistent with the deposits channel of monetary policy, banks that are relatively dependent on deposit funding are hurt more, and more persistently, by negative rates. The design of monetary policy can take this into account. Central bank instruments that target the longer-end of the yield curve are less detrimental to bank performance than those that target the shorter-end in times of negative interest rates. Therefore, quantitative easing and yield curve control deserve special consideration when interest rates are negative and further monetary accommodation is required.