 Interest Spreads and TieringChapter Chapter 10 in The Economics of Target Balances, 2020, pp 83-92 from Springer Abstract: Abstract Arguably, the rise of the Target balances largely results from the ECB’s resistance to allow growing interest spreads between the countries of the Eurozone, which would have lured in private capital and reduced the liquidity outflows. As the ECB saw international interest spreads as distortions in the transmission of monetary policy, it compensated for liquidity outflows by allowing the respective NCBs to issue and lend out more money. However, out of concern for the concentration of liquidity in only a few countries, above all Germany, the ECB Council ultimately decided to differentiate its marginal policy interest rates. It did so by exempting huge brackets or “tiers” of banks deposits from penalty interest, thus effectively differentiating the marginal deposit rates between the countries. The differentiation immediately implied bank lending from liquidity abundant countries like Germany to the liquidity scarce Mediterranean countries in order to exploit the unexploited bracket space, which reduced the Target balances. Keywords: Money creation; Excess reserves; Deposit facility; Penalty interest; Law of one Price (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-50170-9_10 Ordering information: This item can be ordered from DOI: 10.1007/978-3-030-50170-9_10 Access Statistics for this chapter More chapters in Springer Books from Springer |
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