Can banks survive negative rates, instability in global financial system?

The spread of unconventional monetary policies threatens to set off dangerous and unpredictable feedback loops

The declining economic outlook and increasing political pressure are pushing central banks into more aggressive unconventional monetary policies. Simultaneously, fears are growing that such steps, especially negative interest rates, actually threaten the stability of the financial system. They risk setting off dangerous feedback loops in credit markets and the real economy, where the second and third-order effects are difficult to anticipate or control.

As the experience of banks in Japan and Europe has illustrated, the process follows a predictable pattern.

Low growth, low inflation, output gaps, unemployment and underemployment -- combined with financial instability, especially volatile asset prices -- first prompt central