ECB Studying Tiered Deposit Rate To Alleviate Banks’ Plight: Sources | 3/12/2016 | Staff
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FRANKFURT (Reuters) – The European Central Bank is studying options to lower the charge that banks pay on some of their excess cash as a possible way to offset the side-effects of its ultra-easy policy, two sources told Reuters.

No policy proposal has been made on the matter but the objective of the move would be to return some of more than 7 billion euros ($7.90 billion) a year the ECB collects in interest from banks, one of the sources said.

Interest - Rates - Banks - ECB - Liquidity

Negative interest rates effectively mean banks pay the ECB to park their excess liquidity safely with it overnight.

A so-called tiered deposit rate would mean banks are exempted in part from paying the ECB’s 0.40 percent annual charge on their excess reserves, boosting their profits as they struggle with an unexpected growth slowdown.

Problem - Rate - Rates - Time - Conflict

A problem with a tiered rate is that it would signal that rates are going to stay low for a very long time, in potential conflict with the ECB’s forward guidance, which sees rates at record lows only until next year, one of the sources added.

On the other hand, movements in financial markets suggest investors have already priced out a deposit rate hike for almost another two years.

Sources - Work

The sources said work is still at...
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