standing facility of the ECB which enables counterparties to place balances with the respective national central bank until the next ESCB business day at a pre-specified interest rate. – The deposit facility fixes the interest rate floor in the overnight money market. This is because no one will deposit money with another entity at an interest rate that is lower than the rate offered by the central bank. – For the first time in recent central bank history, in June 2014 the ECB set a negative interest rate of 0.1 percent on the deposit facility and also on banks’ deposits in excess of the minimum reserve requirement. The purpose of the measure is to discourage institutions from parking money at the central bank instead of lending it to businesses and households. However, if banks cannot find customers who are likely to service a loan according to contract, they will be inclined to engage in other markets. This increases the risk of bubbles, especially in the domestic real estate market and in internationally traded commodities. – See money, parked, policy rate, reserve requirement, negative interest rate, transmission mechanism, monetary, interest rate corridor. – See the annex “Euro area statistics,” section “Monetary statistics,” subheading “Key ECB interest rates” in the respective ECB Monthly Bulletin for the scope of operations.
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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