A tiering rule to balance the impact of negative rates policy on banks


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.

Benoit Nguyen
Benoit Nguyen
Team Lead Economist, PhD

My research interests include monetary policy implementation, money market, asset allocation, and digital finance.