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Using a panel dataset of 2442 banks operating in the 28 EU countries over the period from 2011 to 2017, this paper aims to assess the impact of negative interest rates on banks" profitability and risk-taking. Using dynamic panel models, we find that the effect of negative interest rates on banks' margins is stronger compared to an environment of positive rates. We notice that negative rates have squeezed banks' net interest margins. We also find that banks have offset the effects on margins by increasing non-interest income. Furthermore, negative interest rates contributed to a reduction in banks' risk-taking. Finally, we note that the effects of negative rates on profitability and risk-taking differ among banks, depending on their specific balance sheet characteristics.

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Does the lending channel of monetary policy operate under a negative interest rate policy (NIRP)? The purpose of this study is to shed light on the existence of a lending channel of monetary policy under NIRP. To do so, we aim to provide an in-depth analysis of the relationship between NIRP and banklending behavior. To achieve this, we employ a large panel dataset of 4072 banks operating in 54 countries over the period 2009-2018 and a Difference-in-Differences methodology. We find that banks located in countries affected by negative interest rates have adjusted their bank-lending behavior by increasing lending activities. Our findings suggest that in response to negative interest rates, banks have reduced their lending cost, and increased lending supply, especially for loans longer than 3 months. Finally, we also find that the transmission of monetary policy under negative interest rates to the real economy depends on banks' specific characteristics such as reliance on retail deposits and size.