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ECB: Two-tier deposit rates - Raboabank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 26, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Guatemala) - Analysts at Rabobank noted that according to an article on Reuters, ECB officials are considering the possibility of introducing a staggered, two-tier deposit rate.

    Key Quotes:

    "This would mean that banks with high excess liquidity (e.g. core banks) pay, on balance, more to park their cash at the ECB than banks with little excess liquidity (e.g. periphery banks)."

    "The thinking behind this is that it should incentivise banks to put their excess cash to work in “the real economy”. We would doubt the effectiveness of this, as the overall amount of cash in the closed Eurosystem will not disappear.

    Another possible explanation is that it could reduce fragmentation in the system, by incentivising “core banks” to lend their excess cash to “periphery banks” at a rate higher than the penalty deposit rate but lower than the standard deposit rate. This would offer the periphery banks an arbitrage opportunity at the expense of core banks. While this also contravenes the ECB’s principles of a single monetary policy, we don’t think that many of the ECB’s hawkish policymakers would be very keen to sign up to such a deal."
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