A Tiering Rule to Balance the Impact of Negative Policy Rates on Banks

Jean-Guillaume Sahuc, Mattia Girotti and Benoît Nguyen

No 2022-4, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: Negative interest rate policy makes excess liquidity costly to hold for banks and this may weaken the bank-based transmission of monetary policy. We design a rule-based tiering system for excess reserve remuneration that reduces the burden of negative rates on banks while ensuring that the central bank keeps control of interbank interest rates. Using euro-area data, we show that under the proposed tiering system, the aggregate cost of holding excess liquidity when the COVID-19 monetary stimulus fully unfolds would be more than 36% lower than that under the ECB’s current system.

Keywords: Negative interest rates; excess liquidity; tiering system; bank profitability; interbank market (search for similar items in EconPapers)
JEL-codes: E43 E52 G21 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cwa, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://economix.fr/pdf/dt/2022/WP_EcoX_2022-4.pdf (application/pdf)

Related works:
Journal Article: A tiering rule to balance the impact of negative policy rates on banks (2022)
Working Paper: A Tiering Rule to Balance the Impact of Negative Policy Rates on Banks (2022)
Working Paper: A Tiering Rule to Balance the Impact of Negative Policy Rates on Banks (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2022-4

Access Statistics for this paper

More papers in EconomiX Working Papers from University of Paris Nanterre, EconomiX Contact information at EDIRC.
Bibliographic data for series maintained by Valerie Mignon ( this e-mail address is bad, please contact ).