Why doesn't the Fed want to drive nominal interest rates below zero in response to a financial crisis and recession?

Question

Multiple Choice
Negative nominal interest rates would stimulate borrowing and spending, increasing aggregate demand.
Negative interest rates would stimulate so much lending that it would unfairly increase the market power of banks.
Negative nominal interest rates would cause people to withdraw their money from banks, reducing the ability of banks to extend loans.
The Fed would lose the ability to raise the interest rates above zero in the future.

Answer 1

The correct answer is:

Negative nominal interest rates would cause people to withdraw their money from banks, reducing the ability of banks to extend loans.

When nominal interest rates are negative, it essentially means that depositors would have to pay to keep their money in the bank, which could lead to bank runs as people withdraw their funds in favor of keeping cash at home. This behavior would diminish the banks' capacity to lend, counteracting any intended stimulative effects of negative interest rates on borrowing and spending.