A tiering rule to balance the impact of negative policy rates on banks

Mattia Girotti, Benoît Nguyen and Jean-Guillaume Sahuc

Finance Research Letters, 2022, vol. 47, issue PA

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)
Date: 2022
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Citations: View citations in EconPapers (1)

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Related works:
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)
Working Paper: A Tiering Rule to Balance the Impact of Negative Policy Rates on Banks (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005377

DOI: 10.1016/j.frl.2021.102589

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