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A two-tier system for remunerating banks’ excess liquidity in the euro area: aims and possible side effects

Alessandro Secchi ()

No 534, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This note focuses on a two-tier excess reserve remuneration system, a measure recently introduced by the ECB Governing Council that aims at supporting the bank-based transmission of monetary policy by exempting part of banks’ excess reserves from the negative remuneration resulting from the current application of the deposit facility rate. The analysis shows how this tool helps to preserve the positive contribution of negative rates to the accommodative stance of monetary policy, although a careful calibration is necessary to avoid unwarranted effects on euro short-term rates. The initial experience with the two-tier excess reserve remuneration system has been positive so far: its introduction has taken place without any major tensions in money market rates.

Keywords: interest rates; monetary policy implementation; unconventional monetary measures; liquidity management (search for similar items in EconPapers)
JEL-codes: E42 E43 E52 E58 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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