Do negative interest rates make banks less safe?

•Banks' systemic risk reactions to rate cuts into negative territory differ across bank business models.•Large universal banks and fee-focused banks appear to have benefited from rate cuts into negative territory.•Rate cuts in positive territory appear to have a different impact.

We study the impact of increasingly negative central bank policy rates on banks' propensity to become undercapitalized in a financial crisis ('SRisk'). We find that the risk impact of negative rates depends on banks' business models: Large banks with diversified income streams are perceived as less risky, while smaller and more traditional banks are perceived as more risky. Policy rate cuts below zero trigger different SRisk responses than an earlier cut to zero.