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

Mattia Girotti, Benoît Nguyen and Jean-Guillaume Sahuc

Working Papers from HAL

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)
Date: 2022
Note: View the original document on HAL open archive server: https://hal.science/hal-04159818
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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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