24 May 2014
What would a negative deposit rate achieve? - Rabobank
FXStreet (Guatemala) - Analysts at Rabobank explained that given that there are still imbalances in the way liquidity is distributed across the banking system in the eurozone, a negative deposit rate may speed up the process of defragmentation.
“Net policy lending by the Eurosystem to banks in Spain and Italy is still significant, whereas it is negative in some core member states, such as Germany, the Netherlands and Austria, where deposits at the central bank outstrip their borrowings from the ECB”.
“Germany and Luxembourg are also the main counterparts in terms of having net Target-2 claims”.
“We believe it is quite unlikely that core banks will suddenly start lending more to banks in the periphery should the ECB introduce a small negative deposit rate, but we would envision downward pressure on interbank deposit rates and short-term instruments such as T-bills from the highest rated member states, as banks with a large liquidity surplus seek alternatives to paying for their excess reserves”.
“Moreover, global banks, which have access to overnight facilities at other central banks that still pay for excess liquidity, may be incentivized to enter cross currency swaps and put their excess reserves at the Federal Reserve or Bank of England, for example. Therefore, at the margin, we believe a negative deposit rate could also put further downward pressure on the euro exchange rate – which of course does appear to be one of the aims of such a policy measure (although the ECB wouldn’t explicitly admit so)”.
“Net policy lending by the Eurosystem to banks in Spain and Italy is still significant, whereas it is negative in some core member states, such as Germany, the Netherlands and Austria, where deposits at the central bank outstrip their borrowings from the ECB”.
“Germany and Luxembourg are also the main counterparts in terms of having net Target-2 claims”.
“We believe it is quite unlikely that core banks will suddenly start lending more to banks in the periphery should the ECB introduce a small negative deposit rate, but we would envision downward pressure on interbank deposit rates and short-term instruments such as T-bills from the highest rated member states, as banks with a large liquidity surplus seek alternatives to paying for their excess reserves”.
“Moreover, global banks, which have access to overnight facilities at other central banks that still pay for excess liquidity, may be incentivized to enter cross currency swaps and put their excess reserves at the Federal Reserve or Bank of England, for example. Therefore, at the margin, we believe a negative deposit rate could also put further downward pressure on the euro exchange rate – which of course does appear to be one of the aims of such a policy measure (although the ECB wouldn’t explicitly admit so)”.