Using an event-study design, we investigate monetary policy interest-rate-to-performance sensitivity of the European banking sector over the 07/2012–06/2017 period when interest rates were (close to) zero. We apply the Wordscores approach to introductory statements of ECB's Governing Council press conferences to estimate a ‘shadow prime rate’. Based on short-run intraday event windows, we find shadow prime rate changes positively affect changes in the EURO-STOXX-Banks Future. Our findings add to the recent evidence documenting that banks benefit from increasing interest rate levels in a low-interest-rate environment.
Bibliographical notePublished online: 24 December 2018.
- Central bank communication
- Banking sector
- Interest rate sensitivity
- Shadow prime rate
Hayo, B., Henseler, K., & Rapp, M. S. (2019). Estimating the Monetary Policy Interest-rate-to-performance Sensitivity of the European Banking Sector at the Zero Lower Bound. Finance Research Letters, 31, 471-475. https://doi.org/10.1016/j.frl.2018.12.019