The aim of this doctoral thesis is to study whether protracted periods of low and negative interest rates have unintended effects on the banking sector. Specifically, by investigating a completely new event in the central banking community: the introduction of the Negative Interest Rate Policy (NIRP), this thesis studies the effect of nominal negative interest rates on bank margins and profits, and lending for a large sample of European banks over 2012-16. Moreover, by employing granular data on the Italian banking sector, this thesis investigates the effect of low interest rates on Italian bank business model over 2007-17. Overall, I find that negative interest rates reduce margins and profits as deposit rates are sticky downward. However, this depends on bank- and country-specific characteristics. If NIRP compresses margins and profits, capital accumulation via retained earnings is limited. Consequently, I also find that NIRP negatively affects lending. Again, this depends on bank- and country-specific characteristics. Finally, I show that banks try to keep up profits in a low and negative interest rate environment by switching from traditional intermediation activity to a more ‘services-oriented’ business model.