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The negative rate is only on deposits over a bank's minimum reserve requirements. The negative deposit facility interest rate will also apply to: (i) banks’ av

The negative rate is only on deposits over a bank's minimum reserve requirements. The negative deposit facility interest rate will also apply to: (i) banks’ average reserve holdings in excess of the minimum reserve requirements; (ii) government deposits held with the Eurosystem that exceed certain thresholds that will be set in the relevant Guideline to be published by 7 June; (iii) Eurosystem reserve management services accounts if not currently remunerated; (iv) participants’ account balances in TARGET2; (v) non-Eurosystem NCB balances (overnight deposits) held in TARGET2; and (vi) other accounts held by third parties with Eurosystem central banks when stipulated that they are not currently remunerated or are remunerated at the deposit facility rate. [1] http://www.ecb.europa.eu/press/pr/date/2014/html/pr140605_3.en.html http://www.ecb.europa.eu/press/pr/date/2014/html/pr140605_3....

cgio 12y ago
Which, given my layman's understanding, implies that the policy is at the same time idiotic and genius. More specifically, the deposits are mandatory and under the liquidity coverage ratio in Basel. Therefore, the negative rate will only have the intended effect as long as the financial institutions maintain a higher than required coverage. That extraneous buffer being minimised, the incentive will be to keep liquidity in government bonds and especially those from big economies with good ratings, essentially moving liquidity to the centre of the European economy (Germany and maybe France.) Therefore, the periphery economies will be funding the central ones. Genius. Or Idiocy. From a purely theoretic perspective, the efficiency of these economies should be bolstered, but this happens to the detriment of the periphery and more or less diminishes their chance to balance their performance. The question is whether the goal of the Euro Area is economic performance or economic balance and stability.
- cgio 12y ago
  Instead of a simple down-vote, I would appreciate an argument. After all, I am not claiming to be an expert on the subject and I am completely open to being educated about how this measure could work out.

cgio 12y ago

Which, given my layman's understanding, implies that the policy is at the same time idiotic and genius. More specifically, the deposits are mandatory and under the liquidity coverage ratio in Basel. Therefore, the negative rate will only have the intended effect as long as the financial institutions maintain a higher than required coverage. That extraneous buffer being minimised, the incentive will be to keep liquidity in government bonds and especially those from big economies with good ratings, essentially moving liquidity to the centre of the European economy (Germany and maybe France.) Therefore, the periphery economies will be funding the central ones. Genius. Or Idiocy. From a purely theoretic perspective, the efficiency of these economies should be bolstered, but this happens to the detriment of the periphery and more or less diminishes their chance to balance their performance. The question is whether the goal of the Euro Area is economic performance or economic balance and stability.

cgio 12y ago
Instead of a simple down-vote, I would appreciate an argument. After all, I am not claiming to be an expert on the subject and I am completely open to being educated about how this measure could work out.