We extend the basic (representative-household) New Keynesian [NK] model ofthe monetary transmission mechanism to allow for a spread between the interestrate available to savers and borrowers, that can vary for either exogenous orendogenous reasons. We nd that the mere existence of a positive...

This paper investigates the relationship between short-term interest rates and bank risk. Using a unique database that includes quarterly balance sheet information for listed banks operating in the European Union and the United States in the last decade, we find evidence that unusually low...