A Tiering Rule to Balance the Impact of Negative Policy Rates on Banks
Jean-Guillaume Sahuc (),
Mattia Girotti () and
No 2022-4, EconomiX Working Papers from University of Paris Nanterre, EconomiX
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
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cwa, nep-eec, nep-mac and nep-mon
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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)
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2022-4
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