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

Jean-Guillaume Sahuc, Mattia Girotti and Benoît Nguyen

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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.

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Date: 2022
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Published in Finance Research Letters, 2022, 47

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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)
Working Paper: A Tiering Rule to Balance the Impact of Negative Policy Rates on Banks (2022)
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