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

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  • Alessandro Secchi

    (Bank of Italy)

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.

Suggested Citation

  • Alessandro Secchi, 2019. "A two-tier system for remunerating banks’ excess liquidity in the euro area: aims and possible side effects," Questioni di Economia e Finanza (Occasional Papers) 534, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_534_19
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    References listed on IDEAS

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    5. Baldo, Luca & Hallinger, Benoît & Helmus, Caspar & Herrala, Niko & Martins, Débora & Mohing, Felix & Petroulakis, Filippos & Resinek, Marc & Vergote, Olivier & Usciati, Benoît & Wang, Yizhou, 2017. "The distribution of excess liquidity in the euro area," Occasional Paper Series 200, European Central Bank.
    6. Altavilla, Carlo & Boucinha, Miguel & Peydró, José-Luis, 2018. "Monetary policy and bank profitability in a low interest rate environment," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 33(96), pages 531-586.
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    Cited by:

    1. Aberg, Pontus & Corsi, Marco & Grossmann-Wirth, Vincent & Hudepohl, Tom & Mudde, Yvo & Rosolin, Tiziana & Schobert, Franziska, 2021. "Demand for central bank reserves and monetary policy implementation frameworks: the case of the Eurosystem," Occasional Paper Series 282, European Central Bank.
    2. Takuto Arao, 2022. "Market Operations under the Three-Tier System- Explanation Using the Reserve Demand Curve Model -," Bank of Japan Research Papers 22-05-27, Bank of Japan.

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    More about this item

    Keywords

    interest rates; monetary policy implementation; unconventional monetary measures; liquidity management;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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